Ten31 Timestamp 787,794
After a few weeks of relative calm in the banking sector, this week saw renewed volatility as First Republic Bank – one of the 20 largest banks in the country with over $200 billion of assets just a few months ago – finally succumbed to the ongoing fallout of March’s Silicon Valley Bank implosion, despite receiving significant emergency funding from the Fed and a $30 billion infusion of deposits from the country’s largest banks a few weeks ago. First Republic’s stock cratered another ~80% this week on the back of a dismal Q1 earnings report (after already shedding over 85% of its value since early March), and reports surfaced on Friday evening that the bank would enter FDIC receivership.
What appears to be the impending failure of First Republic would mark the second largest bank collapse in US history, highlighting that the woes in the legacy banking system are likely far from over, particularly with growing stress in the commercial real estate market, poor macro indicators across the economy, and another Fed rate hike likely on the table for this coming week. In a stroke of ironic timing, the bitcoin network reached the 75% mark of this current halving cycle just after news broke about First Republic entering receivership. With the bitcoin network now just under a year away from the next halving and major financial institutions failing left and right, we continue to expect the coming months to be especially fruitful for new bitcoin adoption and development of innovative new bitcoin applications.
Portfolio Company Spotlight
Hodl Hodl is a non-custodial, peer-to-peer platform for bitcoin trading and bitcoin-backed lending. One of the longest-running P2P marketplaces with over 50,000 contracts completed, Hodl Hodl uses bitcoin’s native multisignature capabilities to allow users to either trade or conduct loans backed by bitcoin collateral with confidence and security. Each party in a Hodl Hodl trading or lending contract holds a key to a 2-of-3 multisig escrow address, while Hodl Hodl manages the third key to arbitrate any disputes. After the recent shuttering of P2P marketplaces Paxful and Local Bitcoins, Hodl Hodl is — along with Peach, another Ten31 portfolio company — one of the only high quality options for non-custodial, KYC-free P2P bitcoin transactions.
Selected Portfolio News
Strike launched its Send Globally functionality for users in Guatemala:
Fold announced users can once again pay bills through PayPal with their Fold cards, opening up significant sats-back opportunities:
Hodl Hodl integrated Mempool.space as its default block explorer:
Mutiny released the latest version of its SDK, which integrates Mempoo.space’s fee-rate API and allows for channel opens to the C-lightning LSP.
Media
Jack Mallers of Strike and Sam Abbassi of Hoseki were featured presenters at the Bitcoin Policy Institute’s first summit in Washington.
Unchained was featured in Axios as the only major bitcoin-backed lender that didn’t collapse in 2022.
Unchained also collaborated with Tuur Demeester on his latest bitcoin bear market report.
The latest LN Markets newsletter featured an interview with Ten31 Partner Matt Odell.
Market Updates
First Republic Bank, a victim of the fallout from the collapse of SVB last month, saw significant headwinds again this week after reporting it lost ~40% of its deposits in the first quarter and was reviewing strategic options to support its balance sheet.
Later in the week, the bank faced a curb on borrowing from the FDIC as it became apparent an acquisition by a rival might not materialize.
Finally, after the market close on Friday, reports surfaced that First Republic, a top 20 bank by assets with a $40 billion market cap just over a year ago, would be placed under FDIC receivership. JP Morgan and PNC are reportedly among the large banks in talks to acquire First Republic from the FDIC.
Before this latest banking collapse, famed investor Stanley Druckenmiller – architect of George Soros’s historic bet against the GBP in 1992 – noted his only high conviction trade is a bet against the US dollar.
New data showed the yuan has overtaken the dollar as the most used currency for cross-border payments with China for the first time.
Meanwhile, Argentina announced it would begin paying for Chinese imports in yuan rather than dollars (though this appears partially motivated by a need to preserve rapidly draining USD reserves).
The Core PCE Index (the Fed’s favored inflation measure) was up 0.3% M/M and 4.6% Y/Y in March, slightly higher than expected and in line with February’s figure.
On the back of higher inflation expectations for the near term, the market is back to expecting another 25bps rate hike at this week’s FOMC meeting.
In response to entrenched inflation and declining living standards, ostensibly the responsibility of central banks to manage, the Chief Economist for the Bank of England told his countrymen to have fun staying poor.
Incoming Bank of Japan Governor Kazuo Ueda threw cold water on the idea of near-term monetary policy tightening, noting the BOJ would remain accommodative while reviewing options for the next 12-18 months.
Regulatory Update
Senators and Congressmen including Cynthia Lummis, Ted Cruz, and Tom Emmer presented at the Bitcoin Policy Institute’s first summit in Washington, DC this week.
Congressman Patrick McHenry suggested legislation to oversee the “crypto” sector could be on the House floor in the next two months.
A CFTC commissioner called for the restriction of online anonymity to reduce “fraud” and “illicit finance.”
Noteworthy
The investment arm of the Kingdom of Bhutan confirmed it has been mining bitcoin surreptitiously for several years.
The security research team for hardware wallet manufacturer Ledger discovered a massive vulnerability in Binance’s widely used Trust Wallet browser extension, another reminder of the importance of cold storage and high quality self custody tools.
Blockchain surveillance firm Chainalysis published a report claiming to identify bitcoin addresses linked to Russian intelligence, only to later delete the report without explanation.
Telegram’s 700 million+ user base can now buy, receive, withdraw, and trade bitcoin on a P2P basis through the platform’s Wallet bot.
Data tracking cell phone activity is still dramatically off pre-2020 levels in many major city centers, another problematic indicator for commercial real estate.
Privacy-focused browser Tor introduced a proposal for a new proof of work system to mitigate the denial of service attacks that frequently plague the Tor network.
Travel
Nashville BitDevs, Mempool Summit, and Meetup, May 9-10
Ten31 / Unchained Institutional Investor Event @ Bitcoin 2023, May 17
This afternoon event in South Beach will feature panels and networking with founders and operators from many Ten31 portfolio companies. Please reach out if you would like to attend.
Bitcoin 2023, May 18-20
Nashville Ten31 Tribe event, June 14
Nashville Lightning Summit, July 13-14