Ten31 Timestamp 781,667
More cracks in the fiat dam appeared this week in the wake of Silicon Valley Bank’s implosion. US banks’ use of the Discount Window rocketed to levels not seen even during the 2008 Great Financial Crisis as uninsured depositors, jarred by the sudden collapse of the blue-chip SVB and not reassured by unclear guidance from the Treasury Department, rushed to move funds to “systemically important” banks and money market funds. Notably, instability in the banking system spread well beyond the circumscription of the “crypto” or tech industries over the course of the week. Shares of First Republic Bank cratered over 70% (after precipitous declines the prior week as well), and a $30 billion injection of deposits by the largest banks in the US did little to stop the bleeding. Even more significantly, European behemoth Credit Suisse – already troubled from years of legal settlements, poor financial performance, and deposit outflows – entered a tailspin and appears on the verge of being acquired by UBS on Monday for a fraction of its already depressed market cap. Finally, on Sunday evening, the Federal Reserve and other major central banks announced a coordinated change to USD swap line operations, which will shore up global dollar liquidity by conducting swaps daily rather than weekly.
Despite (or perhaps because of) the growing macro chaos, bitcoin’s USD exchange rate has seen a dramatic ~40% uptick this week, closing out the weekend above $28,000 for the first time since June 2022. While we tend not to focus much on near-term price gyrations, we think bitcoin’s outsized move up this week is a noteworthy manifestation of the market realizing that the jig is up on Quantitative Tightening and there is a desperate need for a liquid savings asset free from counterparty risk in an increasingly unstable environment. In the coming months and years, we expect this recent decoupling to continue as market participants come to view bitcoin as the ultimate risk-off asset.
Selected Portfolio News
Unchained announced significant new upgrades to its support for Ledger devices to improve the security and UX of multisig:
Start9 released embassyOS v0.3.4:
Start9 also launched a package for Nostr client Iris:
Hodl Hodl rolled out a variety of new UI / UX improvements:
Mempool.space updated its difficulty adjustment widget:
Bitcoin Magazine released the sixth and final episode of Freedom Money with Matt Odell, featuring a conversation with Dario Sneidermanis, the creator of Muun Wallet.
Signs of further stress in the US banking system intensified this week, as borrowings from the Discount Window topped $150bn, surpassing the peak weekly levels from the 2008 financial crisis.
On Thursday, a consortium of large banks including JP Morgan, Goldman Sachs, and Wells Fargo deposited nearly ~$30 billion of reserves at struggling regional bank First Republic in an attempt to stabilize the bank’s stock.
However, First Republic shares cratered another 30% on Friday as concerns mounted that even that infusion might not be sufficient.
Fears about the banking system also spread beyond the US this week, with European bank stocks taking a beating. Credit Suisse in particular came under pressure after its largest shareholder, the Saudi National Bank, commented that it would not increase its position in the stock.
By the weekend, Credit Suisse was in talks to be acquired by UBS for ~$3 billion in an all-stock deal that would represent a dramatic discount from CS’s $8 billion market cap at the close of trading on Friday. Even at that reduced valuation, the Swiss National Bank was still forced to offer UBS a $100 billion line of liquidity to complete the deal.
The Swiss government also reportedly considered a partial or full nationalization of Credit Suisse.
Amid growing uncertainty, liquidity in Treasuries declined sharply and the MOVE index (which measures the volatility of the Treasury bond market) surpassed levels not seen since the 2008 financial crisis.
Meanwhile, CPI data for February showed the index up 6% Y/Y, in line with expectations. The reading was down from +6.4% in January for the lowest annual increase since September 2021, potentially paving the way for more accommodative central bank policy (particularly in the face of a stressed banking system).
All of this week’s headlines seem to have catalyzed a swift pivot in market expectations, as FFR futures now imply rate cuts by the summer.
That said, the ECB maintained its tighter stance this week and raised its benchmark rate by 50bps despite the chaotic backdrop (though ECB President Christine Lagarde signaled caution about further hikes from here).
But on Sunday evening, the Fed, ECB, and other major central banks announced USD swap operations between global banks and the Fed would move to daily rather than weekly frequency, opening up global dollar liquidity further.
During a Congressional hearing this week, Treasury Secretary Janet Yellen made comments suggesting uninsured bank deposits would not receive a federal backstop without a determination of systemic risk for any given bank.
Federal Reserve officials announced that FedNow, the institution’s new digital payments system, is set to launch in July of this year.
Against a backdrop of accelerating and destabilizing change, SEC Chairman Gary Gensler provided a small sense of stability with a reiteration of his long-held view that Proof of Stake tokens are securities.
Senator Elizabeth Warren told the press on Sunday that she has “no confidence” in San Francisco Fed President Mary Daly and that Fed Chairman Jerome Powell is “the wrong man for the job.”
The Wall Street Journal reported on a new study that identified nearly 200 banks with vulnerabilities similar to those faced by SVB just before its sudden collapse.
Fidelity opened up its “Fidelity Crypto” platform to the public, allowing users to buy bitcoin commission-free through Fidelity; however, withdrawals are not currently enabled.
Scrib, an application developed by Marty Bent, DJ Seeds and the TFTC team for easy Lightning payments on Ghost content, announced the new Ghostr Bridge feature, which automatically mirrors a Ghost blog to any Nostr client supporting long-form content.