Two of America's biggest banks just went belly up.
The thing is, there are two sides to this story...
The one you'll hear about in the mainstream press, and the one I'm about to share with you.
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[/ad] For a transcript of this video, see below. This transcript has been lightly edited for length and clarity.
The Silicon Valley Bank Story the Media ISN'T Telling You
Have you seen the headlines? A pair of major U.S. banks collapsed over the weekend. And their demise suggests the country's regulatory banking system did its job.
But there's another story beyond the headlines, one you need to pay attention to.
That's because it centers around an inevitable, if not unsettling goal: The U.S. government wants more control over your money. Let me explain...
The SVB Fallout
Let's start with what you're probably reading about in the mainstream media.
Over the weekend, Silicon Valley Bank ("SVB"), America's 16th-largest bank, became the second-largest banking failure in U.S. history. Additionally, Signature Bank (SBNY) just became America's third-largest banking failure. What happened?
A rule that dates to the Great Depression puts restrictions on banks, specifically on how much money they're allowed to have on their books. Banks must ensure they have enough in reserves to cover any loans or withdrawals.
The problem was that neither SVB or Signature Bank had enough on hand and were scrambling to raise money to cover this shortfall. In the end, they didn't raise enough, and when a flurry of customers panicked – racing to withdrawal their funds – a bank run ensued. And both banks folded.
At first blush, this is applause-worthy news. Though not under the best circumstances, the system worked like it should. Banks failing to follow regulations suffered the consequences and were shuttered. All good, right?
Not quite...
Crypto Enters the Picture
Let's shift gears and talk about the cryptocurrency space (I'll explain why this relates to SVB in a moment).
You've probably heard about the recent failures of companies like Genesis, Silvergate (SI), and FTX. Each one was involved in the crypto space...
But perhaps surprisingly, so was SVB. You see, this wasn't your typical banking institution. And its dabble into crypto is what I believe has the U.S. government's mouth watering. Let me explain...
Stablecoins vs. Bitcoin
You see, SVB had a relationship with a company called Circle, a business offering what's known as a stablecoin.
Stablecoins are different than traditional cryptos (e.g., bitcoin or ethereum). While bitcoin is uncorrelated to the U.S. dollar, stablecoins are correlated. They're backed by the dollar. So, in essence, they're considered bankrupt-proof.
In July 2022, Circle's CEO said its "USDC [stablecoin] is always redeemable 1 for 1 for U.S. dollars. Any amount. Always. Period."
So Circle's coin is totally safe, right? Not so fast...
Circle's Connection with SVB
It turns out, 25% of Circle's funds – the same funds that are supposed to back the stablecoin – were sitting in SVB – $3 billion worth. So when SVB went under, $3 billion was unavailable. That 1:1 relationship broke, and people lost money.
Last year, Senator Elizabeth Warren warned about the dangers of crypto's connection with banking. And this is a perfect example of the danger she alluded to.
So, what happens now?
Government Takes Control
Simply put, the government is going to take control.
Last week, the U.S. Under Secretary of the Treasury announced that the U.S.'s digital currency, a new digital dollar, is ready to go.
And this digital dollar will be backed by the Fed.
Moving forward, you'll see the government pushing people away from any digital currency that's not backed by a central bank. And that will undoubtedly have an impact on your money-handling experience, whether you own crypto or not.
For now, keep an eye on the U.S. government and how the digital dollar transforms. If you're a "Pro" subscriber, I've got an opportunity below that is set to outpace the S&P 500 over the next several years.
We're in it to win it. Zatlin out.
