Silicon Valley Bank Collapse: Could you have profited from it?

Finance and economics explained simply
Silicon Valley Bank Collapse: Could you have profited from it?

Silicon Valley Bank failed after customers, mostly startups and tech companies, withdrew deposits as venture capital funding dried up, requiring the bank to sell its assets at a loss to meet the withdrawal requests.

The bank had invested billions of dollars in bonds over the past few years, but the value of these investments fell as interest rates rose, resulting in losses. Despite efforts to raise additional capital, the bank was unable to find investors, and regulators seized its assets.

The bank’s failure is not expected to have a significant impact on the wider banking sector, but there may be economic ripple effects in the US tech startup world if the remaining funds at Silicon Valley Bank cannot be released quickly.

Earlier in one of our posts, we had already explained how the SVB collapse occurred but you may find another quick summary below.

How did we get here?

SVB is a commercial bank that funded Venture Capitals and Tech Startups. The bank invested its excess money to bonds that were sensitive to interest rate changes.

When FED increased interest rates, the bonds that SVB invested dropped in value. As tech stocks also dropped in value, tech startups began to withdraw money from the bank.

The bank had to sell $21 Billion of bonds and as a desperate move, announced a share sale of $2.25 Billion.

The US regulators took action against SVB on March 10 and the Signature Bank on March 12, in order to protect the depositors. But it was too late. The depositors had already run in the bank, pressing it for withdrawal.

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The crisis even caused S&P 500 to have its worst week of the year, dropping 4.5% in value.

How could a CFD trader benefit from all this?

Unless you were a depositor of SVB, there was in fact one way to profit from this unexpected and sharp market movement. You could have traded CFDs for stocks and opened a Sell (Short) position in the market.

Because CFD traders can profit from both buy AND sell positions with stocks. Thus, volatility can be your best friend when you know how to use it as a trader!

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