So much has happened in the last week that it may be useful to look at the totality of these events in relation to bitcoin.
youThis is an opinion editorial by Dillon Healy, institutional partnerships at Bitcoin Magazine and Bitcoin 2023.
The biggest news of the last week has been the collapse of the banking sector, specifically crypto banks. On March 2, in his own filing with the SEC, Silvergate raised concerns about its solvency and ability to continue operating. In my opinion, this was without a doubt the result of direct and/or indirect exposure to the ongoing contagion within the crypto industry created by the Luna, 3AC and FTX crashes. Unsurprisingly, a bank run by Silvergate partners to distance themselves and withdraw assets followed.
Shares of Silvergate ($SI) immediately fell more than 50% as reports of customers moving elsewhere mounted.
“It is now becoming increasingly difficult for cryptocurrency companies to establish or maintain relationships with a US bank.” said Ivan KachkovskyFX and crypto strategist at UBS.
Speculation mounted around how a Silvergate unlock would affect stablecoins and other crypto service banks. Silvergate has been the main issuer of the second most popular USDC stablecoin.
Contagion concerns then shifted to Signature Bank, the other popular crypto services bank.
Signature noted that it had previously stated as of February 1 that it would no longer support any of its crypto exchange clients in buying and selling amounts less than $100,000. Signature said in December that it would be reducing your exposure to the crypto sectoralthough without eliminating it completely.
On March 8, Silvergate officially announced that they were winding down operations and liquidating assets. through a press release.
The official collapse of Silvergate meant more widespread contagion and increased uncertainty and fear for bank customers and USDC users. On March 9 and 10, Silicon Valley Bank suffered a classic bank run. Billions in cumulative withdrawals from the fractional reserve bank, many withdrawals from its core clientele, start-ups.
SVB shares plunged 60% and by the end of the day the bank had been shut down by regulators and the assets had changed hands to the FDIC. The SVB relaxes it was the second largest banking collapse in US history.
Confidence in banks was deteriorating rapidly as most publicly traded companies collapsed.
With the unlocking of SVB, attention once again turned to Circle’s USDC, the second largest stablecoin with a market capitalization of $43 billion, as Circle was reported to have a not revealed part of his $9.8 billion cash reserves in the now-collapsed Silicon Valley Bank.
During March 11, the USDC/USD began to break down reaching $0.87.
Fear continued to spread over the weekend, thousands of start-ups banked at SVB would not have access to their funds or payroll on Monday. Signature Bank was also officially shut down by US regulators.
On Sunday, the Fed, along with the FDIC and the US Treasury, took a step with a statement:
“Depositors will have access to all their money starting Monday, March 13. The taxpayer will not bear the losses associated with the resolution of Silicon Valley Bank.”
In the midst of all the contagion, there was reports of Signature Bank being specifically targeted by anti-crypto regulators. “I think part of what happened was that the regulators wanted to send a very strong message against cryptocurrency,” said Barney Frank, a Signature Bank board member.
The obfuscated bailout allowed failing banks to borrow against their negative collateral value at par instead of market value.
The week started with the new government bank deposit protection mechanism, and concerns persist over which banks insure counterparty risk for both individuals and businesses. In the wake of several fractional reserve banking collapses, Bitcoin appeared to be trading at fundamentals instead of speculation for the first time in a long time.
The risks associated with fractional reserve banking combined with centralized monetary policy and volatile interest rates are out in the open, while fully supported banking solutions are apparently actively blocked by the Federal Reserve
The events of the last few weeks should serve to educate people about the dangers of a centrally controlled economy that depends on credit and leverage. I highly recommend for people interested in learning how Bitcoin works outside of this system. attend Bitcoin 2023 in Miami from May 18 to 20, where the subject will be deepened.
This is a guest post by Dillon Healy. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
