The market for crypto-assets initially experienced a drop in value due to the depegging of the USDC, but it quickly rebounded after the Federal Reserve announced its support for banks on Sunday evening. However, despite this announcement, banking stocks were still subject to criticism on the following day.
The ghost of Lehman Brother is not far. The systemic risk of the banking system remains omnipresent.
1, 2, 3, and the Fed coming to the rescue, like déjà vu…
Never more than today has there been so much interest in holding cryptos. Cryptos have been sought as an hedge against banks and dominated all assets. For a few years already, a growing number of companies have been using crypto as a cash diversification tool in a low interest rate environment. Today, asking whether a company should “de-bank” part of its cash or why it might want to do so should be much less of a relevant question than HOW TO do it!
Granted, the FED showed up again to bail out the banks in trouble yet the liquidity risk remains and may be higher than ever! A company cannot afford to see its cash funds blocked, would it only be for a couple days, holding its breath hoping for the State to save the day one more time. In crypto, the availability of your funds does not depend on the financial strength of your intermediary but rather on the custody tool used. You OWN your crypto assets as evidently as any other of your belonging, although the physical evidence here is unquestionably verifiable on the blockchain. You are free to lend them or hold them safely in a wallet. In a bank on the other hand, you can merely claim a YOU OWE ME to your bank which ultimately decides what to do with it, whether or not or to whom it will lend it.
No “crypto-FUD” this time
Over the weekend, USDC's value dropped to $0.85 after Stablecoin Issuer Circle reveals $3,3B SVB exposure and after Coinbase announced it would pause USDC/USD conversions until Monday due to concerns over Circle's banking partners' solvency. Circle had $3.3 billion in cash held at Silicon Valley Bank, which faced pressure from holding long-duration Treasuries purchased at lower rates.
First time ever we witness a USDC depeg. It did happened briefly to USDT before, although rather as a result of a continuous FUD and speculation for more than 2 years. Today it's the best student in the class, in its "centralized" category, which is challenged. There is a very important factor to acknowledge about this latest fact which is that there is no question about the reserves of USDC… the concern is a direct consequence of an external factor caused by TradFi. It should be considered a test, and USDC passed the test, with high honors! The advantage of this stablecoin is that its collateral is deposited in large banks, certainly fallible, but largely considered too big to fail. This is the decision to take if you trust a minimum of support from central banks. So the risk is basically the same than if you keep USD in a to Tier one US Bank, simply reported and diversified. Conversely, if you prefer to avoid the risk of bank failure, new algorithmic stablecoins are being launched by AAVE or CRV as we covered in one of our last newsletters.
The Fed, Treasury, and FDIC released a joint statement Sunday evening, stating that Signature Bank had closed and depositors of both Signature and
Silicon Valley Bank would be made whole. Shareholders, like some unsecured debt holders will not be protected, but the Fed will provide additional funding through the Bank Term Funding Program (BTFP) to eligible depository institutions. Circle resumed redemption, and USDC remains 100% backed.
They also announced a new banking partner, Cross River Bank, who will be charged with automated settlement for minting/redemption of USDC. Despite the advantageous terms of the BTFP, bank stocks are getting hammered to start the week.
No day off for this week
Additional shake ups are still expected for the week which is busy on the macroeconomic side:
US core CPI this afternoon at 1:30 p.m CET, US producer price tomorrow
and ECB on Thursday. Be careful for two weeks, with the delay in time changes, Wall-street will open an hour earlier for Europe CET at 2:30 p.m. instead of 3:30 p.m.
Sources: Blockworks, Bloomberg, CoinMarketCap. Picture : histoiredelafolie. fr
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