Bitcoin’s funding rate flattens, but should BTC bulls rejoice and buy the dips?

April 25, 2024 Coin Telegraph

Bitcoin’s inflation-hedge theory tested as rising interest rates bring turbulence to markets

September 29, 2023 Coin Telegraph

Banks

The losses on US Treasuries recently surpassed $1.5 trillion and the likely outcome is turbulent markets, but how will Bitcoin price fare?

The U.S. economy has been facing turbulent times lately, with the U.S. personal consumption expenditure (PCE) inflation index rising by a significant 3.5% over the past 12 months. Even when excluding the volatile food and energy sectors, it's evident that the efforts made by the U.S. Federal Reserve to curb inflation have fallen short of their 2% target rate.

U.S. Treasuries have lost a staggering $1.5 trillion in value, primarily due to these rate hikes. This has led investors to question whether Bitcoin (BTC) and risk-on assets, including the stock market, will succumb to heightened interest rates and a monetary policy aimed at cooling economic growth.

*Theoretical losses of U.S. Treasury holders, USD. Source: @JoeConsorti*

As the U.S. Treasury keeps flooding the market with debt, there's a real risk that rates could climb even higher, exacerbating the losses to fixed-income investors. An additional $8 trillion in government debt is expected to mature in the next 12 months, further contributing to financial instability.

As Daniel Porto, the head of Deaglo London, pointed out in remarks to Reuters:

"(The Fed) is going to play a game where inflation is going to lead, but the real question is can we sustain this course without doing a lot of damage?"

Porto's comments resonate with a growing concern in financial circles—a fear that the central bank might tighten its policies to the point where it causes severe disruptions in the financial system.

High interest rates eventually have devastating consequences

One of the primary drivers behind the recent turmoil in financial markets is the rise in interest rates. As rates increase, the prices of existing bonds fall, a phenomenon known as interest rate risk or duration. This risk isn't limited to specific groups; it affects countries, banks, companies, individuals and anyone holding fixed-income instruments.

The Dow Jones Industrial Index has experienced a 6.6% drop in September alone. Additionally, the yield on the U.S. 10-year bonds climbed to 4.7% on Sept. 28, marking its highest level since August 2007. This surge in yields demonstrates that investors are becoming increasingly hesitant to take the risk of holding long-term bonds, even those issued by the government itself.

Banks, which typically borrow short-term instruments and lend for the long-term, are especially vulnerable in this environment. They rely on deposits and often hold Treasuries as reserve assets.

When Treasuries lose value, banks may find themselves short of the necessary funds to meet withdrawal requests. This compels them to sell U.S. Treasuries and other assets, pushing them dangerously close to insolvency and requiring rescue by institutions like the FDIC or larger banks. The collapse of Silicon Valley Bank (SVB), First Republic Bank, and Signature Bank serves as a warning of the financial system instability.

Federal Reserve shadow intervention could near exhaustion

While emergency mechanisms such as the Federal Reserve's BTFP emergency loan program can provide some relief by allowing banks to post impaired Treasuries as collateral, these measures do not make the losses magically disappear.

Banks are increasingly offloading their holdings to private credit and hedge funds, flooding these sectors with rate-sensitive assets. This trend is poised to worsen if the debt ceiling is increased to avoid a government shutdown, further raising yields and amplifying losses in the fixed-income markets.

As long as interest rates remain high, the risk of financial instability grows, prompting the Federal Reserve to support the financial system using emergency credit lines. That is highly beneficial for scarce assets like Bitcoin, given the increasing inflation and the worsening profile of the Federal Reserve's balance sheet as measured by the $1.5 trillion paper losses in U.S Treasuries.

Timing this event is almost impossible, let alone what would happen if larger banks consolidate the financial system or if the Federal Reserve effectively guarantees liquidity for troubled financial institutions. Still, there’s hardly a scenario where one would be pessimistic with Bitcoin under those circumstances.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Crypto Biz: Bidding war for SVB Capital, new crypto funds and Citi’s private blockchain

September 22, 2023 Coin Telegraph

Blockchain Capital

This week’s Crypto Biz explores SVB Capital bids, new funds from Blockchain Capital, the Hut 8-US Bitcoin merger and Citigroup’s private blockchain.

The venture capital industry appears to be gearing up for portfolio rebalancing in 2024, with investors positioning themselves to increase exposure to digital assets in the next bull market. Blockchain Capital, for instance, closed two new funds this week, with $580 million in capital to be deployed in crypto gaming and decentralized finance projects.

Likewise, SkyBridge Capital, Atlas Merchant Capital and Vector Capital are among the final bidders to acquire SVB Capital, the venture arm of the collapsed Silicon Valley Bank. SVB Capital is reportedly a backer of other major venture capital firms in the crypto space, including Sequoia and Andreessen Horowitz.

Meanwhile, Bitcoin-based investment products from mainstream financial giants are becoming more popular. Japan’s largest investment bank, Nomura, launched through its subsidiary, Laser Digital, a new Bitcoin (BTC) fund for institutional investors looking to cater to the demand for Bitcoin exposure.

A growing number of newcomers are also attracting funds. Web3 startup Bastion disclosed $25 million in a seed round to bridge Web3 infrastructure into enterprise technology. The round was led by Andreessen Horowitz, Laser Digital Ventures (Nomura’s crypto venture arm), Robot Ventures, Aptos Ventures and Alchemy Ventures.

This week’s Crypto Biz explores SVB Capital bids, new funds from Blockchain Capital, the Hut 8-US Bitcoin merger and Citigroup’s private blockchain.

Scaramucci leads bidding for Silicon Valley Bank VC arm: Report

SVB Financial Group, the former parent company of Silicon Valley Bank, is getting closer to a deal that will see the institution sell its venture capital arm, SVB Capital. According to a report from The Wall Street Journal, Anthony Scaramucci’s SkyBridge Capital and Atlas Merchant Capital are jostling with the San Francisco firm Vector Capital in the final stages of the bidding process. Sources claimed that SVB’s venture capital arm could be sold off for between $250 million and $500 million but warned that a final sale is not guaranteed and would still require the review of the creditor’s committee. SVB Capital conducts a wide range of investments, including backing other major venture capital firms, such as Sequoia and Andreessen Horowitz. The company is not part of SVB’s Chapter 11 bankruptcy proceedings, and a decision on the sale is expected in the coming weeks.

*SVB Capital holdings overview as of December 2022. Source: SVB Capital*

Hut 8 receives green light from Canadian Supreme Court for US Bitcoin merger

Canadian Bitcoin mining firm Hut 8 is set to wrap up its planned merger with US Bitcoin following final approval from the Supreme Court of British Columbia. Hut 8 and US Bitcoin announced the move in February 2023, subject to shareholder and regulatory approval. The merger will see the two companies form Hut 8 Corporation, or “New Hut,” which will become a publicly traded United States-based business. An initial announcement from Hut 8 highlighted that the merger would open up 825 megawatts of capacity across six different Bitcoin mining and data center facilities. New Hut also plans to list its shares on the Nasdaq and Toronto stock exchanges, trading under the ticker HUT.

Blockchain Capital closes funds totaling $580 million for investments in crypto gaming, DeFi

Venture capital group Blockchain Capital announced the closing of two new funds, totaling $580 million, for investment in infrastructure, gaming, decentralized finance (DeFi), and consumer and social technologies. The funds will operate as Blockchain Capital’s sixth early-stage fund and its first “opportunity fund,” which will serve as an entry point for companies that have already attracted funding. The funds will be split, with $380 million reportedly going to the early-stage fund and $200 million earmarked for the opportunity fund. The company did not specify which projects will be prioritized by the investment fund; however, a spokesperson noted that it has no plans to invest in artificial intelligence-related projects or act as a hedge fund.

We're thrilled to share the closing of 2 new funds – our 6th early stage fund and 1st opportunity fund.

Together, they total $580 million and serve to reinforce our commitment to leading the global transition to decentralized, blockchain-based systems. ↓https://t.co/Vr2uYnGlF7
— Blockchain Capital (@blockchaincap) September 18, 2023

Citi Token Services will provide payments, liquidity to institutional customers

Institutional clients can now access cross-border payments, liquidity and automated trade finance solutions through Citi Token Services, a private blockchain by Citigroup. According to the financial giant, its Citi Treasury and Trade Solutions is licensed in over 90 countries and has completed two pilot programs. It worked with Danish shipping company Maersk and an unnamed canal authority on a program that made instant payments to service providers via smart contracts, reducing transaction processing times from days to minutes. The service replaces bank guarantees and letters of credit, the statement said. A second pilot enabled clients to transfer liquidity between Citi branches, allegedly reducing “frictions related to cut off times and gaps in the service window.” Citi was among the large financial institutions that participated in a proof-of-concept headed by the Federal Reserve Bank of New York that concluded in July.

Crypto Biz is your weekly pulse on the business behind blockchain and crypto, delivered directly to your inbox every Thursday.

BTC bull market began in March, more will realize in a year — Arthur Hayes

September 5, 2023 Coin Telegraph

Arthur Hayes

The BitMEX co-founder says Bitcoin has been on a bull run since the Fed’s $25 billion dollar program aimed at stabilizing the U.S. banking system.

Bitcoin (BTC) has been on a bull run for the past six months or so, and the market has yet to respond — but it will in around six to 12 months, according to BitMEX co-founder and former CEO Arthur Hayes.

In a Sept. 5 keynote speech at Korea Blockchain Week, Hayes argued Bitcoin’s bull run began on March 10, the day Silicon Valley Bank (SVB) was taken over by the Federal Deposit Insurance Corporation.

Two days before SVB’s takeover on March 8, Silvergate Bank went into liquidation. Two days later, on March 12, Signature Bank was forced to close by New York regulators.

In response, and in a bid to stop further possible collapses, the Federal Reserve created the Bank Term Funding Program (BTFP) — offering banking loans of up to a year in return for them posting “qualifying assets” as collateral.

*Hayes speaking at Korea Blockchain Week in Seoul. Source: Andrew Fenton/Cointelegraph*

“Essentially, what [the Fed] did was backstop the entire banking system by saying: ‘Please give me your underwater dogshit bonds, and I’ll give you fresh dollars,’” Hayes said.

“Me and the rest of the market rightly saw through this as basically them admitting that they caused this problem — the structure of the banking system — and this is one of the ways you can fix it, which is: print more money.”

Since then, Bitcoin’s price has increased — currently around 26% — which is why he claims the bull market started that day.

“We basically ditched this whole facade that we care about the value of the dollar and the value of any fiat currency.”

This pushed traders to consider fixed-supply assets such as Bitcoin, Hayes claimed.

However, the rest of the market market hasn’t yet responded, but he gave a timeline of six to 12 months for that to occur.

Hayes said even if the Fed and other central banks continued interest rate hikes to enable economic tightening or if they “print more money,” then Bitcoin would still perform well.

“On both scenarios, whether the Fed raises or cuts, we are in a good position as the cryptocurrency industry,” he said.

Collect this article as an NFT to preserve this moment in history and show your support for independent journalism in the crypto space.

Magazine: How to protect your crypto in a volatile market — Bitcoin OGs and experts weigh in

Fed, NYDFS assess their supervisory performance after March’s big bank failures

April 28, 2023 Coin Telegraph

Banking

Internal reviews of the supervision of Silicon Valley Bank and Signature Bank have been released, showing weaknesses on the part of the banks’ regulators as well as management.

Bank regulators in the United States have turned from introspection to confession after the high-profile bank failures in March. The New York Department of Financial Services (NYDFS) published its internal review of Signature Bank supervision on April 28, the same day the U.S. Federal Reserve Board released its review of the handling of Silicon Valley Bank (SVB).

The banks closed within days of each other, with California regulators shuttering SVB on March 10, and the NYDFS moving against Signature Bank on March 12. Crypto-friendly Silvergate Bank had preceded them, announcing its voluntary liquidation on March 8 and setting off runs on the banks. The string of failures set off shockwaves serious enough that U.S. President Joe Biden felt the need to tweet a response.

The Fed review started with findings that had been noted by commentators: the bank’s management failed to manage its risks, and supervisors “did not fully appreciate the extent of the vulnerabilities” of the bank as it “grew in size and complexity, even though “SVB’s foundational problems were widespread and well-known.”

Furthermore, supervisors failed to act quickly enough on the vulnerabilities they did identify. Annual Capital, Asset Quality, Management, Earnings, Liquidity, and Sensitivity to Market Risk (CAMELS) exams had uncovered deficiencies in 2021 and 2022, but changes in the supervisory team and the bank’s rapid growth got in the way of handling them, and:

“The supervisory approach at Silicon Valley Bank was too deliberative and focused on the continued accumulation of supporting evidence in a consensus-driven environment.”

Regulatory easing due to the passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) in 2019 led to a “tailoring approach” to regulating many large banks, including SVB. Supervisory policy was changed at the same time to place greater emphasis on due process, slowing down regulatory action, according to the report.

The Fed conceded, however, “While higher supervisory and regulatory requirements may not have prevented the firm’s failure, they would likely have bolstered the resilience of Silicon Valley Bank.”

#ICYMI: #NYDFS Announces the Results from the Review of the Supervision and Closure of Signature Bank. Read more here: https://t.co/cHIswG1FDt. pic.twitter.com/ns5xIwLxKA
— NYDFS (@NYDFS) April 28, 2023

The NYDFS noted that crypto-friendly Signature Bank had also experienced rapid growth in the years immediately before its closure. Like SVB, it had a high portion of deposits that were not insured by the Federal Deposit Insurance Corporation (FDIC), which caps its coverage at $250,000 per account.

“The Bank’s growth outpaced the development of its risk control framework,” the New York regulators wrote. Risk management issues were identified at Signature Bank in annual reviews in 2018 and 2019, but they were only partially addressed.

There were problems relating to supervision as well. “Internal staff constraints limited DFS’s ability to staff examinations adequately,” the report said. Also “DFS’s internal processes need clearer guidelines for when examiners need to escalate regulatory concerns or instances in which a bank fails to remediate findings in a timely fashion.” In addition, the mechanisms of the review process within the NYDFS were “cumbersome” and lacked deadlines. In addition:

“[The NY]DFS will consider whether banks need to conduct table-top exercises demonstrating their operational readiness to collect and produce accurate financial data at a rapid pace and in a stress scenario.”

The NYDFS presented its decision to close down Signature Bank as the culmination of a process that began with the bankruptcy of crypto exchange FTX in November. Due to its crypto-friendly reputation, the NYDFS began requiring “provide periodic liquidity updates,” which were made daily in January and switched to monitoring calls on March 8.

The NYDFS worked with federal regulators over the weekend of March 11-12 to assess Signature Bank’s viability after it “narrowly survived the immediate deposit run” of the preceding week, and decided on March 12 that its liquidity was inadequate and its reporting was unreliable. So it possession of the bank and appointed the FDIC as receiver.

The instability in the banking sector did not stop with Signature Bank's closing. Swiss Credit Suisse was subject to a rescue buyout by UBS a week later. The U.S. bank First Republic, which also was characterized by a high volume of uninsured deposits, began to decline in share price in March as well. On April 28, its share price fell 43.3% to $3.51, from $119.74 on March 1, leading to speculation of an FDIC takeover of it as well.

Magazine: Unstablecoins: Depegging, bank runs and other risks loom

NFT markets are out of balance, with sellers dominating: Data

April 27, 2023 Coin Telegraph

Canary Labs

In April there hasn’t been a single day where total sellers on the market haven’t exceeded total buyers.

Recent data has revealed that throughout April, the nonfungible token market has consistently seen more sellers than buyers, without a single exception.

According to data from the analytics platform NFTGo, there were only 7,907 buyers on April 26, while there were 8,641 attempting to sell their NFTs.

Days before, on April 19, the NFT market hit its second lowest point in the past twelve months, with only 5,893 buyers — a slight increase from the lowest recorded date in the past twelve months, which was on June 18, 2022, with 5,343 buyers.

On April 5, while there were more buyers on the market — 18,495 — there were also 36,423 sellers.

Based on the data, there hasn’t been a single day in April where the number of buyers outnumbered the number of sellers in the NFT market, indicating a potential lack of demand that could be concerning for thosplanning to sell their NFT soon.

The last recorded day buyers exceeded sellers was on March 11, when there were 9,756 buyers and 9,754 sellers.

*Graph showing the total number of daily buyers, sellers and holders on the NFT market. Source: NFTGo*

The turbulent market conditions have been met with various community reactions on Twitter.

Ovie Faruq, the co-founder of Canary Labs, stated in a tweet on April 26 that the NFT market is “not functioning” at the moment.

For the last year, daily NFT traders ranged from 20-60k.

In the last few days it dropped to 7k

This market is not functioning atm. pic.twitter.com/akqKuWHmxr
— Mando (@rektmando) April 26, 2023

Cointelegraph previously reported that the NFT market experienced a decline on March 12, after the collapse of Silicon Valley Bank caused fear in traders.

Before the bank’s collapse, NFT trading volumes were hovering between $68 million to $74 million on March 10; however, on March 12, they fell to $36 million.

The dip was also accompanied by a 27.9% drop in daily NFT sales count between March 9 and March 11.

According to a March 20 CoinGecko report, the top six NFT marketplaces saw a rise in wash trading in February for the fourth month straight, with a total volume of $580 million.

The report revealed that the market witnessed a 126% increase from the previous month’s volume of $250 million — with the report attributing the overall recovery of the NFT marketplace as the reason for the increase.

Magazine: From SNL and The Tonight Show to Sotheby’s: NFT creator Bryan Brinkman

US Treasury seeks to tighten nonbank rules following banking crisis

April 24, 2023 Coin Telegraph

banking collapses

Janet Yellen called for further regulation of nonbank institutions, claiming they pose a systemic risk to U.S. financial stability.

The United States Treasury and a number of top U.S. financial regulators suggested new rules to make it easier for the Federal Reserve to designate nonbank institutions as systemically important, making it easier to supervise and regulate them.

In remarks from the Financial Stability Oversight Council (FSOC) Council Meeting on April 21, U.S. Treasury Secretary Janet Yellen raised concerns over “nonbank” financial institutions due to their current lack of supervision and the potential for wider financial contagion to take hold when these firms suffer through periods of distress.

“Nonbank” is an umbrella term for any entity that does not hold a bank license but still provides specific financial services. Unlike traditional banking institutions, these entities are not insured by the Federal Deposit Insurance Corporation (FDIC). Nonbanks include venture capital firms, crypto companies and hedge funds.

Today, the FSOC took action and issued proposals to revise existing guidance on nonbanks designations and release a new financial stability framework. These efforts will strengthen US financial stability and enhance transparency into the Council’s important work.
— Treasury Department (@USTreasury) April 21, 2023

“The existing guidance — issued in 2019 — created inappropriate hurdles as part of the designation process,” Yellen said.

Yellen said the new guidance measures remove these hurdles to designating nonbank status to major financial firms, a process that currently takes up to six years.

According to officials at the meeting, the new, shorter oversight and designation process will still allow for plenty of time for regulators and institutions to communicate and discuss specifics.

Additionally, the new guidance will replace the 2019-era rules with an analysis process where the council determines if “material financial distress at the company or the company’s activities could pose a threat to U.S. financial stability.”

In the wake of last month’s collapses of crypto- and tech-friendly banks Silvergate Bank, Signature Bank and Silicon Valley Bank in the worst banking crisis since 2008, Yellen reassured both investors and everyday citizens that the U.S. banking sector remains robust and secure.

Nodding directly to the new guidance, she warned the recent banking crisis is a cut-and-dry example of why greater oversight and emergency provisions should be granted to FSOC and the Fed.

“Last month’s events show us that our work is not yet done. The authority for emergency interventions is critical. But equally as important is a supervisory and regulatory regime that can help prevent financial disruptions from starting and spreading in the first place,” Yellen said.

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Tether ‘unequivocally reiterates’ no exposure to Signature Bank

April 5, 2023 Coin Telegraph

Bankruptcy

The stablecoin provider denied the allegations that began to surface in regard to its exposure to the now-collapsed Signature Bank.

After a Bloomberg article alleged exposure between stablecoin provider Tether and the now-collapsed Signature Bank, rumors began to circulate regarding the involvement between the two companies.

However Tether immediately reached out to clarify the claims made in the original article. In an email sent to Cointelegraph among other outlets, Tether gave an official response to the situation in which it said it wants to “unequivocally re-iterate that it has no exposure to Silvergate, Silicon Valley Bank and Signature Bank.”

The stablecoin issuer went on to highlight a section of the article that pointed out no issue of a collaboration between Tether and Signature Bank, and that it “failed” to explain that there was no account set up.

Cointelegraph reached out to Tether for further clarification on the situation.

Initial claims in the article said that Tether was gaining access to the United States banking system through Signature by encouraging users to send U.S. dollars via Signature’s Signet to its Bahamian partner Capital Union Bank.

These claims from Bloomberg surfaced despite the fact that Tether chief technology officer Paolo Ardoino took to Twitter on March 12 to clarify that the company had zero exposure to Signature Bank. On March 2 and 10 he tweeted that the company had no exposure to Silvergate and Silicon Valley Bank (SVB), respectively.

At the recent Paris Blockchain Week 2023 event, Ardoino told Cointelegraph that Tether has around $1.7 billion in excess reserves. He continued to call USDT (USDT) one of the “safest assets to hold in the world” in the aftermath of the banking crisis.

This comes after Tether came back at the Wall Street Journal’s ‘stale allegations’ on March 3 that the company faked documents to open bank accounts. The report alleged that Tether faked sales invoices, transactions and hid behind third parties to have opportunities to open bank accounts it couldn’t have otherwise.

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