Is crypto to blame for the current banking crisis?

Dear member,

One of the largest banks in Europe and the 45th largest in the world, Credit Suisse, was tethering on the brink of collapse before UBS Group swooped in to acquire the beleaguered bank. Was this a contagion from the recent U.S. bank crisis involving SVB, Signature, and Silvergate Bank? The evidence doesn’t suggest so. In fact, bank shares rallied ahead of the recent 21st March FOMC meeting.

Did crypto catalyze this deepening rift in tradfi? Far from it, despite being an easy scapegoat. The truth is far simpler. What we may be seeing is the perfect storm of illiquidity, overinflated assets, and poor risk management, further punctuated by a classic bank run.

Investors recently pulled $42 billion out of Silicon Valley Bank within 24 hours. No bank, which all run on the fractional reserve system, can withstand such large volumes of withdrawals. This is a problem that (technically) does not exist in crypto.

While the traditional banking sector was on fire, BTC cooly rallied to a nine-month high of $28,000. Investors are likely fed up with the Fed’s monetary policy dilly-dallying and the inherent points of failure in the traditional financial system. Many are now seeing Bitcoin (and other digital assets) as a safer haven compared to traditional assets. A report by Matrixport, a crypto services provider, showed that the recent +44% BTC rally was largely driven by Americans, ground zero of the recent banking turmoil.

It’s of no surprise then that Goldman Sachs named Bitcoin - with a Sharpe ratio of 1.9 - as the best-performing asset year-to-date, eclipsing the IT (16%) and communication services sectors (15%). The recent rally was preceded by Tether printing 4 billion USDT on the TRON network just last week alone, backed by investor demand and confidence in digital assets.

While fears of a cascading event sparked by the recent banking crisis still loom on the horizon, big names and brands are banking in big bucks in funding. OP3N, a social platform looking to bridge Web2 and Web3, raised $28m against a $100m valuation. A Singapore-based investment firm laid out plans to invest $100m into Web3 startups. Several other named brands, like eToro, raised $250m to expand their product offerings and global reach.

The overall sentiment is turning bullish again, with the Crypto Fear and Greed Index reaching the highest levels since BTC last topped out at $69,000. But among all the locker room chatter, none may come close to ex-Coinbase CTO Balaji Srinivasan’s now-viral million-dollar bet on hyperinflation in the U.S., staking a claim on BTC reaching $1m dollars in the next 90 days.

It’s an outrageous bet. It’s bordering on laughable. It’s preposterous. Balaji is well-respected in the space and rarely, if ever, spouts off nonsensical Cramer-like predictions. But, what if…?

Best regards from the Future,
RFTF.ai 

Market Intel

Credit Suisse acquired by UBS Group in a $3.2b deal at 60% discount as part of “emergency ordinance” to prevent further banking crisis in Europe and the globe

Bitcoin named best year-to-date performing asset by Goldman Sachs after gaining 51% in year-to-date absolute returns, compared to equities, fixed-income securities, indices, and commodities.

Bitcoin exhibits safe-haven characteristics based on a report by Galaxy Digital, with correlations to gold increasing and equities decreasing.

Tether prints 4 billion USDT on TRON Network in a single week, claiming its supply is backed by reserves and confirmed by accounting firm BDO.

Funding Trends

Carbonable, ETH-based carbon tracker start-up, raised $1.2m in a seed round led by Ethereal Venturs and La Poste Ventures.

Web3 AI-powered platform OP3N raised $28m in funding at $100m valuation in a bid to combine blockchain and Web2-friendly interfaces into their Superapp.

Popular trading platform eToro raised $250m at a $3.5b valuation in a funding round, receiving capital from ION Group, Softbank Vision Fund 2, Velvet Sea Ventures, and other existing investors.

Singapore-based BitRock Capital is close to raising $100m to invest in Web3 startups. The firm is backed by GLP and intends to invest in finance and blockchain startups in China and Southeast Asia.

EU-based crypto startups raised $5.7b in VC funding in 2022 despite slowdown in VC investments and the crypto industry bear market and scandals. The report showed Web3 remain a key sector of interest.

Web2 → Web3 Immersion

Nike and RTFKT, a digital art design studio, to release physical NFT Air Force 1 sneakers with contributions from artist Takashi Murakami.

Mastercard partners with Stables, an Australian stablecoin platform, to launch a stablecoin digital wallet integration, enabling retail customers in APAC to spend their stablecoins anywhere Mastercard is accepted.

Nigerians now able to purchase crypto via instant bank transfers within Metamask mobile and portfolio DApp, thanks to partnership with Moonpay.

Chainlink Labs and PwC Germany partners to accelerate enterprise blockchain adoption, helping organizations develop and deploy bespoke blockchain solutions that leverage Chainlink’s technology.

BlackRock and Fidelity quietly expands portfolio to add more BTC, ETH and other digital assets despite the market’s prolonged negative sentiment.

Regulatory Round-up

Africa

Nigeria CBDC adoption spikes as fiat currency shortage grip the nation

Asia

Over 80 foreign and mainland China crypto firms expressed interest in opening offices in Hong Kong and obtaining local licenses, as regulatory framework is set to take effect in June 2023.

US

FDIC facilitates Signature Bank sale to Flagstar, whereby $4b of Signature Bank’s deposits and $60b worth of loans will remain with it in receivership.

Fednow payment service by US Federal Reserve to begin operating in July, facilitating instant payments and transfers, with access granted via Fedline Network. Economist Richard Werner raises concerns, citing the rollout paves the way for a CBDC.

Legislative proposal in Texas aims to protect Bitcoin investors and their digital assets under the state’s constitution, while encouraging Bitcoin miners to seek out any form of energy to help secure the network in Texas.

The Raven Also Spotted

Execs of failed Silicon Valley Bank receives $15m in bonuses upon rescue by HSBC.

Ex-Coinbase CTO Balaji bets U.S. to enter hyperinflation, sending BTC to $1m within 90 days.

Animoca Brands chief Yat Siu claims Asian countries are more willing to adopt and invest in Web3 technologies compared to their North American counterparts.

“Custody” customers of bankrupt Celsius to receive up to 72.5% of their crypto back following a court ruling, while the remaining 36.5% to be paid out by the end of the year.

Paolo Ardoino, Bitfinex CTO, predicts El Salvador’s bitcoin volcano bonds to launch between June and September this year. The bonds are backed by bitcoin and will allow the country to raise funds to repay national debts and build a bitcoin city.