Last 24 hrs – wtf. AGAIN, as if FTX/Luna/Celsius/Regs/Mt Gox/SEC etc etc was not enough for us degens.
So what happened? And how could this all unfold as everyone is in a panic mode.
We were already dealing with a lot before all hell broke loose with Silvergate and then SVB and then USDC
Silicon Valley Bank & USDC
Two very different tales here
- SVB took retail and business deposits and locked them in treasuries ranging from five to thirty years.
- Interest rates went to some T Bills offered at 6%
- Some depositors wanted their cash back so they could invest directly in T Bills and earn higher returns on their cash parked with SVB
- SVB started dilly dallying
- Markets caught whiff & a mini bank run ensued to withdraw, coupled with some major VC/funds asking their portfolio cos to rush and get our while door was open
- Bad became worse. Many companies got caught off guard and needed to pay their bills – aka operating costs, paytroll etc
- Many crypto companies also got caught like Circle that has about $40 bn in USDC in market cap and had about $3.3bn at SVB
What happens to Circle & USDC
- Scenario 1 – Circle’s reserves in SVB gone – that is 3.3 bn out of 40bn. That makes USDC worth around $0.92 and is trading around $0.90. As things unfold, we will know by Monday but there should be some backers for SVB As well as circle IMO (not financial advise). We all have seen worse in SBF & the mafia. This could swing either way. Backers could include – FED, Circle management, VC Funds & Elon Musk 🙂 as always to the rescue. Plus all fudns are held in long term treasuries and there is a secondary market for that. This is teh most probbale scenario for me. If I was Elon, I would be buying this, not Twitter. And save people’s lives and livelihoods. Also, if you really want to swap USDC to USDT, you can still do on Circle – theya re still redeeming.
- Scenario 2 – More crypto companies come out and declare their treasury is stuck at SVB. Just like we had at FTX. This time it’s real dollars that they need to operate. No one has an idea and many might not even declare.
- Scenario 3 – Mass contagion risk spreading to other banks. Very low probability. But never say never. This sheet below is doing the rounds. Take with a pinch of salt but if true this means that according to this ranking of funds involving SVB, gross asset value may refer to the total size of the entrusted funds, and the actual risk exposure may only be a small amount of funds.
In either case, consequences look bad. Everyone is rushing to USDT or BTC/ETH. But this is not looking good and could mean that
- Tech startups and related companies loose a lot of money.
- Some shut down
- We shall see some more job cuts. Not good.
My Key TakeAway
If I was a betting man and I could play my probabilities right today, then this might turn out to be a good thing after all. Here is how it unfolds IMO. Probable, but could be wrong as too many distant forces at work. So DYOR, NFA and all that comes with that
- By Monday we have a backer or a buyer of SVB
- FED provides all the help in the back end – exactly like how they cooked Bear Sterns for JPM back in the day and served it on a. royal plate. I was a banker back then in London, for my sins. I remember clearly.
- Markets stop panicking and SVB is through
- Circle is a different story – but manageable as well. USDC is already recovered to about 0.91 from 0.86 and should be back to 0.94 by weekend
- By Monday worst case scenario is that another backer comes in (internal or external) and we are back to 0.97 and all panic mode is settled.
- But be careful – this is crypto. and this is weekend and someone might want to mess around to put it lightly.