Defunct cryptocurrency lender BlockFi allocated $227 million worth of uninsured funds to money market mutual funds (MMMFs) offered by struggling Silicon Valley Bank (SVB), according to a new bankruptcy filing.
SVB one of the largest U.S. banks and a key partner of venture capital firms — was shut down by the California Department of Financial Protection and Innovation on March 10, without providing specifics.
The move adds to the recent Silvergate bankruptcy carnage, which has seen the cryptocurrency market plummet since early March when the crypto-friendly bank’s financial woes were revealed. Looking at the ongoing BlockFi bankruptcy case, a filing on March 10 indicated that the company had $227 million worth of capital in MMMF provided by SVB.
Notably, the document highlights SVB’s balance summary statement, which states that BlockFi’s investments are not FDIC-insured deposits, are not insured by any federal government agency, and “are not guaranteed by a bank.”
The FDIC's federal deposit insurance covers up to $250,000 per depositor, but does not cover money market funds. Money market mutual funds invest in highly liquid short-term instruments such as cash, cash equivalents, and high-quality short-term debt instruments and are regulated by the SEC.
Investors issue fund shares in exchange for their capital, so BlockFi’s money may not be at risk despite SVB’s troubles. SVB offers several mutual fund investing services, but it doesn't appear to have managed any funds, according to its website. The firm lists big names such as BlackRock, Morgan Stanley and Occidental Asset Management as fund managers.
So, in this case, the risk to BlockFi is likely to be the fund’s performance not related to SVB’s financial woes. One company that appears to be directly affected by the closure of SVB and the bankruptcy of Silvergate is USD Coin (USDC) issuer Circle.
According to the company's latest audit report, as of Jan. 31, $8.6 billion, or about 20 percent of its reserves, was held by several U.S. financial institutions, including SVB, Silvergate Bank and BNY Mellon. The exact value held by SVB and Silvergate is unclear; however, Circle released a statement via Twitter on March 10, stating that the company and USDC will continue to "operate as normal" as it awaits "regarding the FDIC takeover of SVB." clarification on how it will affect its depositors". At the time of writing, USDC has fallen below the $1 peg at $0.98, according to data from CoinGecko.
