In a span of five days, three US banks that support Web3 investments in Africa collapsed in one of the biggest economic shocks in the global banking industry since the 2008 financial crisis.

Silicon Valley Bank (SVB), which banked finances for most African Web3 venture capitalists has been closed down, and taken over by federal regulators in what is regarded as the second largest US bank failure after the collapse of Washington Mutual in 2008.

The US treasury guaranteed depositors that they will recover their money, but will not bail out SVB. Forbes had named SVB as one of America’s best banks for the fifth year in a row on Mar. 6. It collapsed on Mar. 10. It had approximately $209 billion in total assets and about $175.4 billion in deposits last December.

A Dark Week for the Global Crypto Industry

Just two days after the collapse of SVB, New-York based Signature Bank, which is quite popular among crypto investors, on Mar. 12 closed its operations in what is mentioned as being the third largest US banking collapse in history.

That was after Silvergate Bank, which is also a crypto-friendly lender, on Mar. 8 last week announced that it was winding down its operations and liquidating after being hit hard by a financial cataclysm in its digital assets.

Renowned for being a cryptocurrency-friendly bank, Silvergate accordingly earned the nickname, ‘the crypto bank’ which in turn put it under a considerable amount of scrutiny. In a statement, the bank said its liquidation plan includes full repayment of all deposits.

The Failure Shakes Global Markets

So consequential was the failure that Europe’s banking stocks fell to their lowest in a year, despite efforts by the US and EU governments to calm the storm. Tokyo’s stock market has also saw a drop, dragged by the country’s megabank shares falling on March 14, while the ripple effects of SVB’s collapse has already been felt by startups in China too.

Indian Y-Combinator startups have been hit hard, with over 60 of them having over $250,000 stuck Silicon Valley Bank accounts.

Venture capital firm Y-Combinator has said the lack of cash flow arising from the crisis will hit over 10,000 startups. Y-Combinator’s president Garry Tan, said on Twitter that “30% of YC companies exposed through SVB can’t make payroll in the next 30 days”. The accelerator, which funds 80 African startups, has cut nearly 20% of its workforce.

Signature’s deposits hit $88.59 billion on Dec. 31, with crypto exchange Coinbase holding $240 million in cash at the bank and will now use other banking partners to enable customer transactions.

Who will fill the gap left by the three banks?

Co-founder and CEO of Lagos-based crypto exchange Busha Michael Adeyeri tells Nodo News that many legacy banks work with the crypto industry but it will be a matter of wait-and-see for the void left by SVB, Silvergate and Signature to be filled. “I mean, some other banks need to stand up and take that position. So up until then, we just have to see how it plays out,” he says.

People Now Believe More in Crypto

The global crypto industry has been quick to react to these developments.

On Mar. 13, Binance CEO Changpeng Zhao announced on Twitter that the crypto exchange will convert the approximately $1 billion remaining from its Industry Recovery Initiative funds to crypto assets —bitcoin, ether and BNB. The transaction will happen on-chain, and can be purchased using the exchange’s dollar-pegged stablecoin, BUSD.

Soon after the announcement, the global crypto market capitalization rose to $1.12 trillion, a 9.88% increase as at the publishing of this story on Mar. 14. The value of bitcoin rose by 14%, with coins like Conflux appreciating by over 50%, according to Coin Market Cap live data.

“It is because people have now started trusting crypto as an alternative store of value,” Nairobi-based blockchain expert and founder of ChainAdvise Benjamin Arunda told Nodo News. “From the collapse of Luna, Terra, and FTX, crypto traders went back to the basics – holding their assets in cold wallets. People have acclimatized in crypto, they don’t want to go back to traditional finance.”

High net worth individuals, afraid of a market collapse, are also known to have moved their cash from banks to crypto wallets, further pushing up the global crypto market capitalization and the price of most cryptocurrencies, according to Arunda.

“I think this will definitely help to further strengthen the confidence in Euro and US dollar stablecoins, especially USD Coin (USDC). Because [they have] a lot of transparency,” Moyo Sodipo, co-founder and COO of Busha told Nodo News.

Ripple Effects Will Catch Up With Africa

The impacts, according to Arunda, will be detrimental for startups in the African continent where many tech founders have been receiving funding from US-based venture capitalists who banked with the fallen banks.

“When they were bullish about this industry, they looked to Africa for Web3 investments. The collapse affects Africa in a big way because that funding will no longer come,” Arunda says. “These venture companies are now trying to preserve their capital. We don’t know how long that will last, but it will have a negative impact on the blockchain industry in the continent.”

In May 2021, SVB injected some $100 million into Chipper Cash, which was founded in San Francisco in 2018 by Ugandan Ham Serunjogi and Ghanaian Maijid Moujaled. It has presence in Uganda, Kenya, Ghana, and Rwanda. At the time of collapse, it held $1 million in SVB, which owns 2% of the fintech. The startup recently conducted another round of layoffs after cutting 12.5% of its employees last year. It’s now considering a sale.

Since the bank was a leading lender for startups, it required that they have deposits with it as collateral. SVB also offered loans against shares for the startups’ founders as well as cash flow loans.

In his address on Mar. 13, US President Joe Biden said that investors in the affected banks will not be protected as “they knowingly took a risk and when the risk didn’t pay off, the investors lost their money. Which is how capitalism works.”

The Aftershock in Long Run

In the African continent, tech-focused startups that are financed by US-dollar-denominated funding will be adversely affected. These effects may not be witnessed now, but will be felt in the long term, given the hesitancy by venture capitalists to splash their money into the continent like it happened in the past two years.

A report published last May (pdf) by Swiss venture capital firm CV VC in partnership with South Africa’s Standard Bank indicates that 41 African blockchain startups in eight countries received a funding of $127 million in 2021 – the highest in history.

But that could slow down this year. Experts opine that if funding for Web3 startups continues, chances are high that it will be reduced. They in turn will go through a hard time to survive.

To achieve resilience against such shocks, Arunda advises Web3 startup founders to transition sooner from startups to fully-fledged companies. “They should learn from legacy companies, which are funded less than Web3 startups, how to run day-to-day financial operations,” says Arunda, who is also the author of the popular book – Understanding the Blockchain.