This Week’s Top Headlines

i) Bitcoin plunges below $20,000 in its worst week since the FTX crisis in November 2022. Over $100 billion was wiped out in less than 48 hours.

ii) Silicon Valley Bank (SVB), the 16th largest bank in the United States with over $209 billion in assets, collapses in 2 days after a spectacular bank run. The downfall sparked a global sell-off across multiple sectors and is considered as the worst crisis since 2008.

iii) Silvergate Capital, the largest crypto-focused lender in the industry, has announced that it will be shutting down its operations and liquidating its bank due to difficulties stemming from the implosion of FTX and the rapid rise in interest rates.

iv) Hike, hike, and hike! The latest US jobs report showed employment and job growth were still strong. Federal Reserve Chairman J. Powell leans toward more aggressive rate hikes.

v) Bank Negara Malaysia (BNM) holds the Overnight Policy Rate (OPR) steady at 2.75% in its most recent meeting, marking the second instance of doing so. Critics express concern over the negative impacts on the ringgit.

*Due to the substantial number of events that occurred this week, I decided to segregate parts (iv) and (v) into a separate newsletter. Patrons will receive it by Monday (Mar 13).

Scroll down to read the details.

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It’s Doomsweek for Bitcoin

The crypto market swung back to fear this week following a series of crises that repeatedly shook investors’ sentiment. Bitcoin fell to a 2 month low of $19,500 before stabilizing at $20,100 at the time of writing, representing a 13.30% decline in the past 72 hours.

The Relative Strength Index (RSI), which tracks the relationship between buyers and sellers, plummeted to the “oversold” region, a level not seen since the FTX crisis in November last year.

This disastrous week resulted in over $100 billion being wiped out in the global crypto market, with long/bullish traders bearing the brunt of the losses.

We just witnessed the biggest banking collapse since 2008

Silicon Valley Bank (SVB), the 16th largest bank in the United States, imploded after a classic bank run from its clients on Thursday (Mar 9), which led to a huge sell-off across multiple sectors. The firm was founded in 1983 with the main strategy of collecting deposits from businesses via venture capital.

By providing loans to major tech companies and VCs, SVB rapidly expanded in 2021, riding the bull market facilitated by the extremely low rates set by the Federal Reserve. At the end of last year, SVB held over $209 billion in assets and $175.4 billion in customer deposits.

But in 2022, the bank struggled financially from the Fed’s actions to stem inflation with its most aggressive rate hiking campaign ever, which saw rates rising by over 425 basis points in less than 9 months.

On Thursday (Mar 9), SVB announced that it had to sell its shares and bonds at a loss to plug a $2.25 billion hole in its finances.

The announcement led to mass panic.

Investors, VCs, tech companies - literally everyone was trying to get their money out of SVB. It was a classic bank run.

Customers withdrew a whopping $42 billion on Thursday, which led to a -$958 million cash balance at the end of the mania.

Shares initially plunged 60% and were halted on Friday after tumbling 66% in pre-market trading.

US regulators moved quickly to take control of the assets of SVB in response to the bank run. This marks the most significant failure of a financial institution of this kind since the peak of the financial crisis over ten years ago.

USDC stablecoin breaks the dollar peg after announcing $3.3 billion exposure to Silicon Valley Bank

Quick recap: stablecoins are cryptocurrencies designed to maintain a specific peg to a certain asset, like the US dollar. In a simple sense, the peg is maintained by ensuring that the company or issuer has a 1:1 physical reserve for every stablecoin issued.

On Friday (Mar 10), Circle, the issuer behind the world’s second-largest stablecoin, known as USD Coin (USDC), announced that it had $3.3 billion of its reserves trapped in the now-collapsed Silicon Valley Bank (SVB).

The announcement comes as the crypto market is still recovering from a flurry of crises last year which took down the biggest institutions.

According to CoinMarketCap, USDC boasted a market capitalization of over $42 billion before the crisis. The issuer, Circle, revealed on Friday that SVB is one of the six partners which the firm uses to manage ~25% of USDC reserves in cash.

The revelation spooked investors and triggered another wave of panic selling. The USDC stablecoin lost its peg to the dollar and dropped over 13% in less than 24 hours.

At the time of writing, USDC is trading at $0.9551, still relatively far away from the dollar peg.

Silvergate Capital shutters operations, taking the crypto market down with it

Silvergate Capital was established in 1988 as a traditional, California-based bank that offered loans and accepted deposits from customers. In 2013, it expanded its business model to provide services to crypto institutions by operating the Silvergate Exchange Network (SEN).

The bank grew exponentially during the height of the bull market in 2021. Its exchange network attained a volume of $406.1 billion in transfers, which quadrupled the volume in the second half of 2020.

But just last week, the crypto-friendly bank reported that it was unable to meet the March 16 deadline to submit its 2022 annual report, despite being granted an extension. This was due to its highly leveraged exposure to the crypto-industry, which revealed it had only 5.4% of capitalization against its total assets.

Subsequently, on March 2, several of the company's major cryptocurrency clients, including Coinbase, Circle, and Paxos, disclosed that they would sever ties with the struggling bank.

Things only got worse afterwards.

On Wednesday (Mar 15), the company said, “In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of Bank operations and a voluntary liquidation of the bank is the best path forward.”

As covered in my previous issue, Silvergate is the largest bank in the crypto industry, making up 61.7% of total, worldwide “cryptoasset prudential exposures”. It’s winding down spook investors worldwide, and the crypto market dumped as a result.

If you bought $10,000 worth of Silvergate’s shares during its peak in November 2021, you would be left with roughly $120.80 right now - a staggering 98% loss.

That’s all for Part 1 of this week’s newsletter!

*Part 2 of the newsletter, which will cover the Fed’s projected rate hikes and BNM’s pause in the OPR, will be sent to patrons by Monday (Mar 13).

Disclaimer: I am not a financial advisor. This newsletter is based on my own analysis and research. Do not take any of it as financial advice.

*This issue was written at 11.00 AM on 12 March 2023 and completed at 5.00 PM the same day. To get early access to our newsletter, be our patron for as little as $1/month!