Crisis averted and we get a crypto market pump! The US Government saves the day with a bailout and a golden guarantee. After much unease, we can rest easy. Depositors live to see another day. But how did we get here?
Silicon Valley Bank's (SVB) collapse was triggered by a classic asset-liability mismatch compounded by leverage. SVB offered higher rates on deposits to attract clients, but it bought longer-term, higher-yielding bonds to fund these rates when it was cash-rich. As the Fed aggressively hiked rates and the venture capital market experienced turbulence, most of those bonds SVB purchased declined substantially, resulting in big investment losses. The bank kept a lower level of deposits on hand and invested a greater percentage of its capital in order to pay its higher rates, which further exacerbated the situation.
SVB also had a reputation for not having strict lending standards (ironically they lobbied Washington that they were not a systemic bank and needed less oversight), and some speculated that the quality of loans to some riskier venture-backed companies with deposits at SVB deteriorated over the past year. After announcing a $1.8 billion loss in asset sales, the bank failed to secure additional investment capital, leading to a rapid withdrawal of deposits by customers. The collapse triggered a similar rush to withdraw funds from Signature Bank, which also had many tech and venture capital clients, ultimately leading to its own collapse.
The collapse of both banks highlights the importance of proper asset-liability management and strict lending standards in the banking industry. The aftermath has sent tremors through the banking industry. Keep your eyes posted as this situation develops (cough, cough Credit Suisse).
Silicon Valley Bank's (SVB) collapse was triggered by a classic asset-liability mismatch compounded by leverage. SVB offered higher rates on deposits to attract clients, but it bought longer-term, higher-yielding bonds to fund these rates when it was cash-rich. As the Fed aggressively hiked rates and the venture capital market experienced turbulence, most of those bonds SVB purchased declined substantially, resulting in big investment losses. The bank kept a lower level of deposits on hand and invested a greater percentage of its capital in order to pay its higher rates, which further exacerbated the situation.
SVB also had a reputation for not having strict lending standards (ironically they lobbied Washington that they were not a systemic bank and needed less oversight), and some speculated that the quality of loans to some riskier venture-backed companies with deposits at SVB deteriorated over the past year. After announcing a $1.8 billion loss in asset sales, the bank failed to secure additional investment capital, leading to a rapid withdrawal of deposits by customers. The collapse triggered a similar rush to withdraw funds from Signature Bank, which also had many tech and venture capital clients, ultimately leading to its own collapse.
The collapse of both banks highlights the importance of proper asset-liability management and strict lending standards in the banking industry. The aftermath has sent tremors through the banking industry. Keep your eyes posted as this situation develops (cough, cough Credit Suisse).
Quick Hitters
· WeChat Pay has added support for China’s CBDC the digital yuan.
· Coinbase has launched a wallet-as-a-service (WaaS) enterprise solution to allow institutions to offer Web3 wallets to their clients.
· AXA Investment Managers was greenlit to provide crypto services in France.
· Crypto Markets take a hit after NYAG calls Ethereum a security.
· US Court Approves Binance.US’s $1.3B bid for Voyager Client Assets
· US President Joe Biden’s fiscal 2024 budget proposal addressed the crypto industry, proposing doubling the capital gains tax rate and banning crypto wash sales.
· Yuga Labs’ TwelveFold Bitcoin NFTs generated $16.5M in revenue.
· 9GAG files trademark for the word "PFP," used in NFT projects as a reference to "Profile Picture" drops.
· Amazon is expected to launch its NFT marketplace on April 24.
Breaking News
As they say, imitation is the highest form of flattery. Whale watching, the act of monitoring the movements and trends of crypto whales, is one of the best methods to optimize your investment strategy. Bankless put together a neat explainer with 5 free tools to make you a better Whale Watcher than Captain Ahab! The programs mentioned are Arkham (analytics), Dexscreener (analytics), Impersonator (wallet emulator), DeBank (wallet insights), and Context (NFT tracking). Check out the article for more information!
The days keep coming and the institutional adoption keeps coming (I’m pretty sure that was the lyrics to “All Star?”)! Interbank messaging platform SWIFT is getting in on the blockchain fun with their CBDC pilot program. The 12-week testing period included over 18 major banks and 5,000 transactions over several blockchains and fiat payment systems. As basically the gold standard of interbank transactions, many considered SWIFT to be a good candidate for the blockchain revolution.
As crypto becomes more mainstream, regulators in Washington are mulling over how to best manage digital assets. The Keep Innovation in America Act wants to classify crypto as an innovation that American businesses and consumers can ultimately benefit from. It proposes further clarity on what constitutes a crypto broker, and also reevaluates current legislation which they believe stifles innovation.
ENS announces a new upgrade too. eth domains, where users can create subdomains with pre-specified parameters. Existing ENS domains can be converted into ERC-1155 tokens, which can be used to create subdomains. This innovation excites many Ethereum users who consider .eth to be a cornerstone of web3 infrastructure.
Shopify, who previously integrated with Avalanche Protocol for NFTs, is once again dipping their toes into the Web3 waters. They partnered with thirdweb, a web3 infrastructure service, to create a web3 toolkit for their users. “As a merchant, understanding your customers and discovering new buyer segments is mission-critical to running a successful business, says Alex Danco, Director of Product at Shopify, “We’re excited to partner with thirdweb, the fastest shipping team in Web3, to help make smart contracts and Web3 wallet addresses an essential part of the commerce and loyalty toolkit.”
