Dispatch #131: This Banking Hassle Is NOT About Crypto

In this patch of your weekly Dispatch:

• The banks & crypto
• Bitcoin’s absolute defiance
• Small bag holders on the rise

The Big Idea

The Fed Finally Broke Something…It’s Banks 💰

After more than a year of saying inflation was just transitory, the US Federal Reserve is now about 15 months deep into the fastest rate hiking cycle in 40 years. As recently as the middle of last week, Fed chair Jerome Powell was testifying that pesky inflation data suggested they needed to keep rates higher for longer.

But then, SVB happened. Last week Silicon Valley Bank announced that they had lost $1.8B by force-selling long-duration assets before maturity to cover deposit outflows and that they were raising $2.25B more in equity and debt.

The market absolutely freaked out and venture capitalists started advising their startups to get money out. By Thursday afternoon it was a full-blown bank run and by Friday, authorities had stepped in and put SVB in FDIC receivership.

All weekend, tech companies wondered if they would have access to their money above the $250,000 FDIC insurance limits, but on Sunday bank regulators announced that all SVB depositors would be protected in full. Same with depositors of Signature Bank, which was also being shuttered.

There are crypto dimensions of this story, such as Circle’s SVB exposure screwing up USDC for a brief moment – but not the one most mainstream outlets want to tell you. Signature board member and bank regulation architect Barney Frank said that Signature was singled out to send an anti-crypto message, but crypto wasn’t the cause of the chaos.

Fundamentally, this crisis was caused by the mismatch between short-term deposits and long-term loans; a mismatch that was exacerbated first by ZIRP during COVID and then by this extraordinary hiking cycle since.

Has the US Government’s quick action stopped a larger bank run? Only time will tell.

(Editor’s Note: Nexo has no exposure to either bank.)

The Latest In…

Crypto Markets

DEFIANT. That’s the only word to describe the price action of Bitcoin following the collapse of SVB and the Fed stepping in. BTC soared more than 20% over the next two days, prompting many to ask whether the broader financial world was finally understanding the role that Bitcoin served.

There were of course some other plausible contributors to the price appreciation, such as Binance shifting their $1B industry protection fund from stablecoins to BTC, ETH, and BNB. Still, it’s hard to deny what a profound narrative moment Bitcoin had this week, thriving as banks failed around it.

(currency-data: btc button: Buy)

The Latest In…

Ethereum

Hold onto your staked ETH, folks! The Ethereum network's core devs just had their final dress rehearsal for the hotly anticipated Shanghai upgrade, and things are heating up faster than a bowl of spicy noodles.

What's Shanghai? It's a hard fork set to rock Ethereum's execution layer, allowing validators to deposit their staked ETH to execution layer wallets. And to make things even more exciting (or confusing, depending on how much coffee you've had), the upgrade requires a simultaneous change to the Beacon Chain, dubbed Capella. Put ’em together, and you’ve got the snazzy duo Shapella, a name that’ll be on everyone’s lips between now and April 12 – the official date devs are targeting for the fork.

The Latest In…

Nexo Appgrades

Listen up, Nexo fans – the Product Design team just dropped the hottest app upgrade of the year! They went all out and added some seriously cool features to the Nexo App, so get ready to have your mind blown:

• Portfolio breakdown (that'll make your financial advisor jealous)
• LTV ratio monitoring (that'll make your accountant weep tears of joy)
• Total rewards tracking (that'll make your ex regret breaking up with you)
• Savings and Credit Hubs (that'll make you feel like a financial genius.)

Seriously, this upgrade was designed with YOU in mind. We know you're busy, so we made sure everything is super easy to use and understand. And if you're not already downloading the latest Nexo #Appgrade, what are you waiting for? We've got 10 amazing improvements that'll make you wonder how you ever lived without them.

The Week’s Most Interesting Data Story

Shrimps and Crabs Are Buying!

It’s not every week that Glassnode introduces a new metric, but the on-chain data firm recently shared “Yearly Absorption Rate,” which is a way of seeing how different holding size cohorts are growing relative to one another. In recently published research, they showed that shrimp (holders with less than one BTC) and crabs (holders with 1-10 BTC) are growing at a faster rate than whales and exchanges, absorbing 2.25x the annual BTC issuance last year. Among other things, this shows that Bitcoin’s holder base is getting more diverse as these smaller holders buck price trends to buy when others are selling.

Hot Topics

What the Community Is Discussing

A US Congressman is fighting back against Operation Choke Point 2.0.

Is this the real risk?

Hear Hear.

What to Watch for Next Week:

• Will Credit Suisse be the next domino?
• Will the Fed take a pause or still hike?
• Will GPT4 be our AI overlord?