First Republic Bank is no more. It’s not wrapped up in J.P. Morgan. Bitcoin’s
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Wrestling fans might liken bitcoin to the Undertaker of cryptocurrencies. Just when you think it’s dead, it’s lifting itself out of its coffin, flexing its abs. If the government wants to kill bitcoin once and for all, it has a lot of work cut out for them.
“Anything can happen still, according to the many voices from government agencies that don’t understand crypto and want it to die. We are very worried about how things evolve in the upcoming weeks. The future of crypto is being decided now,” Eneko Knörr, the co-founder of the Hong Kong-based financial firm Stabolut and the bitcoin-backed stablecoin USB, told me in an interview.
Even after it became clear that Silicon Valley Bank and the cryptocurrency-focused Signature Bank of New York had both filed for bankruptcy, the bitcoin price has still gone up 25%. For now, bitcoin is sitting pretty.
“Signature Bank’s failure, in the view of many crypto investors, was less about the bank’s viability and more about limiting the on and off ramps for institutional digital asset investors,” says Jahon Jamali, CEO of American Crypto Academy and co-founder of Sarson Funds, a cryptocurrency investment advisor. “This (failure) may have a limiting effect on Wall Street’s continued participation in crypto, but it might also have the reverse effect and increase demand among retail crypto investors who might rush into bitcoin fearing increased restrictions to purchase it.”
It seems to me that the government is willing to put up with bitcoin, still. Bitcoin is welcome here. (Though Chamath Palihapitiya said last week that the U.S. government has “firmly pointed their guns at crypto.”)
Still, many Silicon Valley investors plugged into Washington like bitcoin and want to see it survive. Wall Street loves crypto markets.
Bitcoin has made a lot of people in finance and tech filthy rich. Some would happily go rogue against the established powers of traditional finance and government.
Like Elon Musk has the capital to go against the mainstream media, so do these guys have the capital to go against any pushback to turn bitcoin into nothing more than something you’d use to buy and sell fake swords on a PlayStation. Unlike most cryptocurrencies, bitcoin has staying power.
Nevertheless, the crash of SVB
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Recall last year that former IMF director and now European Central Bank president, Christine Lagarde, said “crypto is worth nothing.” This implies the market cap of Coinbase and the values of Ethereum
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Nic Carter, a partner at Castle Island Ventures and a former Fidelity Investments crypto asset analyst, said he thinks the government is creating “choke points” to make parts of the crypto industry unattractive, especially the crypto-related banks. Those choke points would come from regulation, both real regulation and threats of regulation being tossed out there as talking points at pressers and on blog posts.
The best way to choke the sector would be to discourage traditional banks from dealing with crypto, or discouraging lending to an exchange or a bank like Signature and Silvergate. Carter wrote about this on his Substack, Pirate Wire, back in February. I don’t want to steal his subscribers by giving any more takeaways than that.
Knörr from Stabolut agrees with Carter’s view. He thinks there is a slow, methodical push to keep bitcoin in its place. The recent gains this year must drive them all batty.
“To me, there is a clear and coordinated crackdown on crypto, with Silvergate and Signature Bank as the first victims,” he says. “Banks should get into crypto by buying exchanges as it’s a very good business with huge potential, but they’re not going to do it because they want to get along well with the Fed and the Securities and Exchange Commission. Nobody wants them as enemies.”
Dr. Praveen Buddiga, co-founder of the Terareum Hybrid Crypto Exchange disagrees. He thinks crypto exchanges will be a target for traditional banks to crowd into crypto like corporate media brands crowded into the internet.
“These bank collapses have opened up an opportunity for a traditional bank like JP Morgan Chase, Bank of America
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The flight from equities to bitcoin has been evident since the start of the Silicon Valley, Signature Bank chain of events. Decentralized financial projects such as bitcoin, Ethereum, and alt-coins have validated themselves as real alternative diversification tools other than the usual suspects – gold and silver. With crypto regulation coming, better investor protections means bitcoin will be considered a worthwhile (not worth-less, as Lagarde says) asset class. America’s financial advisors will recommend it to everyone.
Opportunity costs are everywhere.
Year-to-date, bitcoin has outperformed the SPDR Gold and the iShares Silver Trust ETFs by a country mile. Bitcoin’s up over 69.5%. Gold is up 8.45%.
Even though two crypto banks failed, Silicon Valley Bank and Credit Suisse were much bigger names. And First Republic is the second-largest failed bank in U.S. history. (Washington Mutual, of sub-prime fame, was bigger in 2008.) Traditional finance isn’t doing any better than the recent crypto failures.
If governments are wary of bitcoin, Silvergate Bank didn’t fail because of them. In another segment, FTX exchange, whose chief executive was also a big political donor, did not fail because of government intrusion.
“The fall out of SVB bank together with deep debt at traditional banks has cast a dark shadow over them. Investors want to safeguard their wealth. Bitcoin is one of the blue chips of crypto and will protect them in these turbulent times,” thinks Bryan Legend, co-founder of blockchain development company OOXY Labs and Vulcan Blockchain, a layer 1 DeFi in Australia with its own coin, VUL. Legend called Ethereum the other blue chip crypto.
Recent official comment about any new cryptocurrency regulation has been about protecting investors from fraud, and protecting the U.S. from money laundering, which Treasury Secretary Janet Yellen discussed earlier this month. To the lay investor, it all seems reasonable enough.
The stress of bitcoin depends where you sit in the market – Are you running a Silvergate type of business? Coinbase? Are you just a retail investor trading on E*Trade? For most investors, bitcoin is not much different than a high risk/high reward stock. To those who think more globally and strategically, bitcoin is a way around future, programmable central bank digital currencies that are likely to one day limit what one can do with their own money.
Quite frankly, a lot is riding on bitcoin’s success – be it the limits of government power and control, or facilitating a whole new, borderless parallel economy. Bitcoin is part of those questions.
Lastly, rumors of an Executive Order targeting crypto have not come to fruition. The only mention of cryptocurrencies is in Biden’s budget, where the White House says that bitcoin investors will be subject to the same rules as investors in other securities when it comes to reporting losses. The budget has not passed.
Frank Röhrig, tech entrepreneur and CEO of Gym Street, a metaverse start up in Dubai, says traditional banks are watching cryptocurrencies more than ever.
“I often interact with representatives of both banks and crypto exchanges for collaboration, and I can say for sure that despite the ongoing crypto winter and several major crypto scandals, the traditional financial institutions continue to show interest in adopting elements of decentralized finance,” he says, which is the main way banks will end up adopting crypto, other than simply trading it for themselves and clients. Bitcoin will be a challenge for traditional finance. “It will ultimately reduce the monopoly of the traditional financial institutions,” Röhrig says.
Bitcoin’s promise to be something big, to “go moon”, is what keeps investors “hodling”. Failures of the cryptocurrency banks might take millions of dollars worth of bitcoin out of the market. But there can be no doubt now that when they do, there will be someone somewhere waiting to buy them. Expect the same in the days ahead from Monday’s First Republic sell-off.
*The writer is a bitcoin investor.
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