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Banks Go Bye-Bye

Silvergate Bank, which has played a pivotal role in the cryptocurrency industry, announced its decision to enter voluntary liquidation, citing recent industry and regulatory developments. However, industry experts believe that the move will have a minimal impact on the digital asset ecosystem. Another specialist bank that investors should monitor is Silicon Valley Bank, which is facing a capital shortage.

Silicon Valley Bank (SVB) was another bank that experienced extreme stress last week. The Koebissi Letter provides a timeline of recent events related to Silicon Valley Bank, suggesting that the bank's issues began in 2022. Reports emerge regarding SVB's exposure to interest rate risk on $91 billion in bonds, leading to a sale of a $21 billion bond portfolio resulting in a significant loss of $1.8 billion. To cover these losses, SVB announces a $2.3 billion share sale. 

The bank's financial instability prompted a run on accounts beginning last week, with customers withdrawing over $40B in two days. Credit agencies cut SVB's credit ratings, causing market pressure that erases $80 billion in market cap across other US banks. The bank's stock price falls by 60%, followed by an additional 22% after hours. Companies are advised to withdraw from SVB amidst the ongoing turmoil.

In an effort to prevent bank runs and help companies maintain payroll and operations, the Biden administration guaranteed on Sunday that customers of the failed Silicon Valley Bank (SVB) and Signature Bank will have access to their money starting Monday. This comes after SVB's voluntary liquidation and Signature Bank's shutdown, which was the third and fourth bank collapses in under a week. The Federal Deposit Insurance Corporation (FDIC) will make all deposits, including uninsured money whole, and the Federal Reserve will provide additional funding for eligible financial institutions to prevent runs on similar banks in the future. The move was well-received by investors, with Dow futures up nearly 300 points, and S&P 500 and Nasdaq futures up 1.3%. The regulators emphasized that US taxpayers would not be responsible for the failed facilities, but shareholders and holders of unsecured corporate bonds will not be protected.

Wrapping up the banking drama, on March 13th, 2023, New York-based Signature Bank, which serves several clients in the crypto industry, was closed by state regulators, according to a statement by the Federal Reserve. This marks the third bank collapse in under a week, following Silvergate Bank's voluntary liquidation and Silicon Valley Bank's shutdown on Wednesday and Friday, respectively. The Federal Depository Insurance Corporation (FDIC) has taken receivership of the bank to protect depositors, according to the New York Department of Financial Services Superintendent Adrianne Harris. The Federal Reserve, FDIC, and U.S. Treasury Department have issued a joint statement that all depositors who used Signature would be made whole, outlining actions the federal regulators would take to protect depositors in Silicon Valley Bank.

In the last part of the week, crypto prices fell due to several negative developments, including the Silvergate situation, the US Treasury Department's proposal of a 30% excise tax on mining, USDC and DAI de-pegging, and Celsius burning $500 million of wrapped bitcoin. The US government and Voyager also appear to be selling massive amounts of crypto into the market, although for different reasons.

On the regulatory front, the US Department of Justice appealed a New York judge's approval of Voyager's sale to Binance, while the spotlight remains on Huobi and Justin Sun for unclear reasons. The New York Attorney General alleges that Ether is a security in a KuCoin lawsuit, adding further regulatory complexity.

Investors are closely monitoring macro factors this week, such as the PPI and CPI figures, as well as the European Central Bank's rate hike announcement. Inflation concerns continue, with the Fed potentially having to raise interest rates for a longer period of time. The SEC's pending lawsuit against Paxos over its issuance of BUSD is also of concern, with BUSD redemptions halted.