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Silicon Valley Bank and FTX; Parallels and Contrasts

April 1, 2023 | Commentary

  • In many ways the collapse of cryptocurrency exchange, FTX, and the regulated Silicon Valley Bank could not be more different.  There are, however, trends in how traders communicate and react that affected both similarly.
  • It has been widely reported that social media messages by industry titans, Changpeng Zhao and Peter Thiel, appear to have triggered behaviors in tight communities that put the deposit runs in motion.  Higher volatility can be expected from the speed and scope of such communications.
  • Regulators have always focused on past crises. There will no doubt be responses to both recent failures, but it is unreasonable to expect regulators to formulate rules to prevent potential problems that have never before surfaced such as the impact of long duration assets in a rising rate environment.
  • Investors need to stay focused on the long run while experiencing periods of market stress.  Active fundamental managers should enjoy more opportunity to add value, but they need to build portfolios with an eye toward higher volatility name by name and possibly being out of step with their benchmarks regularly

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