BlockFi’s uninsured funds tied up in Silicon Valley Bank

According to a recent bankruptcy filing, defunct cryptocurrency lender BlockFi has $227 million worth of uninsured funds invested in a money market mutual fund (MMMF) provided by the ailing Silicon Valley Bank.

The action intensifies the recent Silvergate bankruptcy chaos, which has seen crypto prices crash ever since the crypto-friendly bank’s financial difficulties were made public at the start of March.

Few more bank collapses then up only

— sassal.eth ?? (@sassal0x) March 10, 2023

On March 10, the California Department of Financial Protection and Innovation shut down SVB, one of the biggest banks in the United States and a crucial business partner for venture-backed enterprises. No explanation was given at the time of the shutdown. According to a March 10 filing in the ongoing BlockFi bankruptcy action, the company has $227 million invested in an MMMF provided by SVB.

Is this a regular MMF, not affiliated with SVB, custodied at SVB or its securities affiliate? The SVB receivership shouldn't affect that. The MMF is not FDIC insured, but the shares' value would depend on what's in the MMF, not what happens to SVB.

— Matt Waters (@mattwwaters) March 10, 2023

Importantly, the complaint cites a balance summary statement from SVB, which claims that BlockFi’s investment is “not guaranteed by the bank,” not insured by the Federal Deposit Insurance Corporation (FDIC), and not covered by any other federal government agency

Crypto lender BlockFi troubles

The FDIC’s federal deposit insurance covers up to $250,000 per depositor but does not cover the scope of money market funds. A money market mutual fund invests in highly liquid near-term instruments such as cash, cash equivalents, and high-quality short-term debt instruments and is regulated by the U.S. Securities and Exchange Commission.

Notwithstanding SVB’s problems, BlockFi’s funds may not be at risk because investors receive fund shares in exchange for their investments. SVB provided a number of mutual funds investment options, although, from the looks of its website, it didn’t manage any of the funds. The company names Western Asset Management, BlackRock, and Morgan Stanley as its fund managers.

As a result, BlockFi is probably more in danger in this situation from the fund’s performance than from SVB’s financial difficulties. The USD Coin issuers Circle appears to be one company that will be negatively affected by the SVB collapse and the Silvergate bankruptcy.