This newsletter covers current headlines within the crypto space, my opinion on them and projects & people I find interesting. Also included is information about important crypto community events both locally & globally.
Howdy crypto-heads, these past months were wild ones with $USDC and $DAI stablecoins losing their pegs to the dollar and dropping under 90c as people moved their funds into tether $USDT. The concern that led to this was the disclosure that the now defunct Silicon Valley Bank (SVB) held some of Circle’s cash and $USDC redemptions could stop if Circle became insolvent. Fortunately things have calmed down a bit but I still wanna cover the following:
A Full Circle Story
Binance CEO troubles
Bitcoin’s recent price action
Denver Crypto Club investor updates
1. Full Circle - A story of Bank Runs, Stablecoins and the U.S. Federal Government
With the drop in trading price from $1.00 to nearly $0.87 for $USDC over this weekend (started losing the peg Friday and has since come back to $0.998 as of Monday morning) many people were wondering if this was “the big one”.
I must admit I had a few fearful moments attempting to arbitrage my crypto loans and reduce my debt denominated in $USDC. With transaction fees spiking on Ethereum’s mainnet, I could tell I wasn’t the only one worrying how virulently this contagion might spread.
So What Happened?
The large Silicon Valley Bank became insolvent as startups (including many in Web3/Crypto/Blockchain) withdrew their money until SVB froze withdrawals and the FDIC stepped in.
On March 10th the bank, which had $212bn of assets, failed with spectacular speed, making it the biggest lender to collapse since the global financial crisis of 2007-09. Most of SVB's depositors were Bay Area tech startups with accounts holding well in excess of the $250,000 that is insured by the federal government. ~ The Economist
While a proper postmortem is still to come, many people with direct exposure to the bank run at SVB feel that it was driven primarily by fear spread via social media. Also they felt many banks, due to their fractional reserve lending schemes would likely suffer similar fates to Silicon Valley Bank if enough depositors lost faith.
NEVER FEAR, UNCLE SAMMY’S HERE!
To keep people from panicking further about other banks going under it only took 2 days for the U.S. Federal Treasury to announce that SVB is “…too big to fail” and that all of the bank’s deposits are guaranteed.
On the same day, March 12th 2023, U.S banking regulators also announced they were taking complete control of operations at Signature Bank citing their “systemic risk” to the banking system, even though they were not insolvent.
With a large majority of crypto companies utilizing these two banks I do not think this was a coincidence but part of a larger plan to de-bank the crypto industry.
Signature had more than enough liquidity to honor withdrawals and this comment from Barney Frank (Dodd-Frank Act & board member for Signature) seems to make things fairly clear regarding the regulator’s actions…
“I believe it was probably to send the message that even though we were doing crypto stuff responsibly, they don’t want banks doing crypto.” ~ Barney Frank
Completing the Circle
While the drama at SVB and Signature was playing out, simultaneously the widely used crypto stablecoin $USDC was losing it’s peg to the U.S. dollar.
Late Friday, on March 10th, crypto twitter learned that SVB held $3.3 Billion of Circle’s cash reserves. Fears that the company behind the stablecoin was insolvent and couldn’t honor conversions into U.S. dollars triggered a mass conversion away from $USDC and into, of all f-ng things, Tether ($USDT).
*Also caught up in this bank/stablecoin run was the algorithmic stablecoin $DAI due in part to it’s large exposure to $USDC on Curve and other DeFi liquidity pools.*
The massive sell-off spiked the price of $USDT to $1.06 on the Kraken exchange and dropped $USDC to nearly $0.86 before things stabilized Monday morning.
While this disparity in prices between stablecoins was a golden goose for arbitrage traders, it also revealed just how reliant crypto can be on single points of failure. This is like…not what crypto is supposed to be about so my takeaway is that we still have quite a bit of work to do before our lovely digital world is hardened enough against the legacy system and it’s attempts to reign us in.
2. CZ feeling the Pressure
Last week there was a panic moment when crypto twitter convinced itself that the CEO of Binance (the worlds largest centralized crypto exchange) was wanted by Interpol via a “Red Notice”. So far it appears that this is only FUD but what isn’t FUD is the fact that “…the U.S. Commodity Futures Trading Commission (CFTC) is suing Binance along with its CEO and former top compliance executive, alleging that they were operating an "illegal" exchange and a "sham" compliance program.”
So what does this mean for people with exposure to the Binance cryptocurrency $BNB? Well, it depends on what you think will happen to Binance and CZ and how far US law enforcement will go to bring him to heel. With the recent attacks on crypto banking institutions and media smears (primarily from senator Elizabeth Warren and supporters) it seems people in the top levels of government won’t push back much about going after CZ or his company Binance.
While this environment of pro crypto-enforcement may not last past the next election cycle, the short-to-mid term outlook is very hard to predict. Ultimately it is up to you to decide if your exposure to $BNB and any assets related to the massive DeFi ecosystem built around it are “something you’re willing to lose”. If not, it may be time to hedge your bets and protect yourself until this situation plays itself out.
3. Bitcoin pops $30k again
Our favorite digital asset has risen from the ashes of it’s yearly low to close above $30,000 USD recently. While the skeptical side of me wonders if we’re just in an extended “dead cat bounce”, it is exciting to see Bitcoin heading up as fears of more bank closures and insolvency dominate the mainstream financial narratives.
Right now I’ve got an alert set to alarm if BTC breaks over $43k or under $24k. I see these levels as the next key resistance/support levels and see the continuation of the uptrend as 60% likely (so 40% probably we head down to at least $24k).
With this amount of uncertainty I’m holding off on making any major moves for now, but if Bitcoin can hold out over $30k for a week or more I’ll be more convinced that this uptrend is going to continue.
*Side Note* I know this is the Bitcoin section but Ethereum’s move to Proof-of-Stake has hit another milestone with the Shanghai upgrade going live yesterday. The biggest news for this upgrade is that people who locked up their Ethereum over two years ago are now able to begin withdrawing.
Initially there were some concerns that this large chunk of $ETH supply suddenly becoming available would trigger a sell-off but so far the price has actually gone up (slightly). This situation is definitely worth keeping an eye on though if you have significant exposure to Ethereum or assets connected to it’s DeFi ecosystem.
4. Denver Crypto Investing Club updates
It was great seeing everyone at our last meeting for March and I enjoyed discussing the Ethereum Layer 2’s we looked at for this month’s pot. April’s meeting will be Virtual Only as I’m having trouble reliably reserving the Smoky Hill Library space.
April 27th, Thursday, 7pm-8:30pm Mountain Time
Virtual via Zoom: https://us02web.zoom.us/j/82954333022?pwd=hyx2iD1JRSPqtRmBK5mfNOtWEbY0Yg.1
Hope to see you there!
That’s it for this edition, stay happy and healthy and I’ll catch you soon!
Much Love,
~Matt