Blockstone Capital Weekly Digest: Friday 17 March 2023
Updated: Mar 24
A summary of the most important developments in the digital asset industry, every week
With the rapid demise of Silicon Valley Bank (SVB), Signature and Silvergate, the past week has been extraordinary, to say the least. As a digital asset FoF, we are truly saddened by the situation as all three banks have played an important part in the innovation ecosystem, serving as strong partners to crypto and fintech players over many years.
For those concerned, we would like to point out that Blockstone is not affected by the loss of these institutions, as we do not bank with SVB, Signature or Silvergate. From the outset, Blockstone has maintained its funds with global systemically important banks.
We can also fortunately report that these events have not materially impacted our Fund Managers. Those who had any exposure to the aforementioned banks have taken preemptive steps to safeguard their funds, and we have been in close contact with them to ensure that their strategies are appropriate given the current environment.
While the unfolding global banking crisis is the most unfortunate of situations, it is worth acknowledging the speed at which global regulators and institutions pulled together to help founders get through this period. It is not often that regulators are praised for being quick on the draw, but the efforts of authorities in the US, UK and Switzerland to contain the fallout of bank failures warrants a mention:
On Sunday 12 March, regulators in the US swooped in with extraordinary measures to guarantee that depositors would have access to their funds.
In the UK, our home turf, we were pleased to see the government and institutions work at speed to get HSBC’s acquisition of the UK arm of SVB over the line.
Swift action from the Swiss central bank (in the form of a $54bn lifeline) thankfully averted an immediate crisis at Credit Suisse.
In this week's news round-up, we provide an overview of the week’s key events, outline possible implications for the days ahead, and share other key developments in crypto that were lost in the shuffle of the banking headlines.
Carl, Vegard and Yev
Bitcoin rises above $26,000 to hit a nine-month high
Looking at the charts, there is little indication that digital asset investors are grieving the ongoing banking crisis.
Bitcoin has hit a nine-month high, rising past $26,700 this morning and taking gains to almost 36% in the past seven days. Zooming out, the asset has climbed about 57% so far this year.
The recent Consumer Price Index data being in line with expectations has been very supportive for the cryptoasset. Moreover, the recent decision by Binance to convert a portion of its $1bn industry recovery fund to BTC also contributed to the sharp rise in Bitcoin.
ETH has also climbed by over 26% for the week, and is trading at $1,749 at the time of writing.
On this festive St. Patrick's Day, let’s hope that the luck of the Irish continues to shine on the crypto market, bringing more good fortune.
The SEN and Signet networks will be sorely missed
The failure of three US banks within a matter of days has raised concerns about digital asset firms losing access to crucial payment networks.
Signature Bank’s Signet Platform (SigNet) and Silvergate’s Exchange Network (SEN) were payment platforms that crypto customers considered core offerings. Both allowed commercial clients to make payments 24 hours a day, seven days a week, through their respective instant settlement services. According to a recent Forbes report, the networks facilitated the transfer of over $2T to-and-from digital asset markets.
Instant dollar settlement, as offered by SEN and SigNet, will take some time to replace, especially with US regulators warning banks away from crypto firms. The void left by the loss of these payment networks highlights the urgent need for innovation and adaptation in response to shifting market and regulatory conditions.
Crypto firms have started pivoting to alternatives in the wake of the Signature and Silvergate closures, including Mercury, Axos, BCB, Starlight and TassatPay, among others. Circle has publicly said that it is shifting assets to BNY Mellon, while Coinbase has established ties with Cross River bank. Additionally, the spotlight is swinging towards Customers Bank, Western Alliance, Byline and Cogent.
Yesterday, the Federal Reserve announced that its real-time payment system, FedNow, will go live this summer. As you might imagine, this announcement has generated a deluge of jokes and commentary about the timing of FedNow being announced in the same week that SEN and Signet were kneecapped.
With the current banking struggles expected to delay institutional investment into the crypto space further (particularly in the States), many are now questioning whether the US has handed over the next decade of tech disruption to other jurisdictions like the UAE. Attention is also turning to the UK and whether Sunak will capitalise on the opportunity to deliver on the promise of making the UK a crypto hub.
Amid USDC turmoil, USDT market share jumps to highest level since May 2022
Tether's stablecoin market cap has reached almost $75bn – its highest since May 2022 – leaving behind USDC by almost double the market cap.
The surge in popularity of Tether’s USDT comes as several US dollar stablecoins, most notably USDC, depegged temporarily as concerns about SVB and other mid-sized US banks mounted over Friday 10 - Monday 13 March.
USDC, long considered by many to be the safest stablecoin, was trading as low as $.086 amid the market jitters surrounding SVB, where Circle revealed it held as much as $3.3bn in reserves. With platforms including Coinbase and Robinhood limiting USDC redemptions, this intensified concerns about the asset and pushed investors to seek safety in other stablecoins.
In the midst of the chaos, investors turned to swapping their USDC for other stablecoins, leading to record trading volumes in decentralised exchanges (DEXs) on Saturday 11th March, with Uniswap and Curve recording almost $12bn and nearly $7bn in volume, respectively.
Although USDC's issues seem to be resolved and it is now back to trading at parity with the dollar, the aftershocks of the SVB bank run have shed light on stablecoin issuers' exposure to counterparty risk, operational risk and the legal rights of stablecoin holders.
With stablecoins growing in use, regulation is no doubt going to be a major topic over the following months and years. If issuers are compelled to move offshore, it could spell a huge setback for the US. In the coming months, we will hopefully see lawmakers step up and enact a sensible regulatory framework.
Roundup of other key developments
Regulation | Legal
European Parliament passes EU digital wallet legislation. More
EU Parliament passes smart contract regulation under Data Act. More
US, Germany shut crypto tumbler ChipMixer; sieze $46m in crypto. More
SBF to have taken $2.2bn from FTX entities. More
Exiled Chinese businessman Guo Wengui arrested on US fraud charges. More
AllianceBlock, ABO Digital to offer tokenised structured products. More
India and the UAE to jointly conduct pilot programs on CBDCs. More
Uniswap V3 goes live on BNB Chain. More
Ex-Babel Finance CEO Flex Yang launches stablecoin called Hope. More
Filecoin becomes a blockchain platform compatible with Ethereum apps. More
Polygon spins off project Avail ; co-founder departs. More
Gibraltar’s Xapo enables GBP payments, prepares USDC option amid banking crisis.More
Company news | Institutional
NatWest limits customers' crypto transfers. More
Crypto exchange Orca to block US traders from website. More
Binance to suspend GBP transactions. More
Binance converting $1bn in BUSD to bitcoin, ether and BNB. More
Ethereum's next big upgrade expected April 12. More
Arbitrum’s long-awaited airdrop to go live next week. More
Blackrock’s Larry Fink: Tokenisation is ’the next generation for markets'. More
Ark Invest adds $6.4m worth of Block shares across three separate funds. More
Open banking platform Tarabut Gateway forms MENA crypto alliance with crypto trading platform Rain. More
21Shares closes six crypto ETPs. More
Euler Finance flash-loan attacked for an estimated $197m, launders $1.8m via Tornado Cash. More
MetaMask fixes privacy issue that linked accounts together. More
BlockSec prevents $5 million from being stolen on Paraspace. More
A16z invests in crypto wallet infrastructure startup Capsule. More
Trust Machines backs bitcoin decentralised exchange Alex. More
Blockchain infrastructure developer Smooth raises $2 million in seed funding. More
From Blockstone Capital
We look forward to connecting with you at Paris Blockchain Week
This coming week, some of the brightest minds in the digital asset space will be convening in the French capital for Paris Blockchain Week. Representing Blockstone at the event is Carl, our Managing Partner. To connect with Carl at the event, reach out on Linkedin or email him at firstname.lastname@example.org.