Now that is what I call a Crypto weekend.
Up to Silicon Valley Bank went pop, it was all about us evil crypto demons corrupting the financial system. It was Silvergate all the way….. then kaaaaaboooom down goes Silicon Valley Bank 18th largest bank in the US. Why? Because its customers were the golden unicorns of tech and their god-like VC, who were suddenly not bringing in deposits but were instead burning them. It gets worse. The regulators have long since told banks ‘to buy our flipping debt, or else’ its triple AAA and has never defaulted, this is what your reserves need to be made of.’ Except when they put up interest rate they crushed the value of those assets, which is not a default or no,no,no, but is in danger of busting banks who have followed the instruction too literally and rely on this devalued assets to be solvent.
This is why the UK pension industry nearly crashed and burnt, rising interest rates ‘reckt’ their bond positions and why the BOE back stopped it to the tune of $100bn.
So who is more dangerous, young sociopathic crypto entrepreneurs who run billion dollar balance sheets on Starbucks napkins or regulators with thousand of highly qualifies accounts who force our institutions to hold their ‘safe’ debt which they then wreck?
Biden or Fried, actually we all know who is most dangerous, how could it be otherwise. Amusingly Biden claims those at fault will be brought to account…. that will be him then. (Not in a billion years)
It kind of mute though, because the regulators can fix they’re blunders because they are the wizards of the magic money we all put store in and with a wave of a digital wand make it all good again.
… this weekend they have.
Not that this hasn’t crashed the European markets…. Which will probably bounce Wednesday, unless this whole farrago has broken something in the bowels of the euro system.
Where does this leave Crypto?
Interesting….. I think this.
Crypto hold $100bn of US short term treasuries. It’s a big customer and if it is shutdown now the $100bn is going to get dumped into the short term treasury markets and up will spike interest rates and down will go mainstream banks asset coverage. Suddenly Crypto stablecoins might seem attractive to the government, a nice, captured customer.
In any event trying to massage the secondary US bank over this lump is going to put ‘operation chokepoint’ on the back burner and may well pivot governments thinking away from strangling the infant to thinking it might be a great customer for government confetti.
Wat brought all these banks down was the stranglehold on banking that makes it hard for certain customers to bank with the big boys or bank at all. This concentrates risk via two prongs:
A business audience of risky clients desperate for a banks however expensive who then crowd into a bank with an appetite for that risk and make it a powder keg.
Creating banks with undiversified client characteristics, creating boom/bust profiles for those banks. It doesn’t matter if it Sam or a blue chip VC, a lack of diversification is almost always fatal in investment and business.
So here we are on the off ramp of a crisis.
The regulators moved fast and decisively, the last great American trait. Its over but there will now be a secular shift. If the idiotcracy wins it will be a big negative, if the economic brains focus it could be great.
I think $100bn of treasury bond liquidations will be enough to concentrate the minds for a good outcome.
In the end I didn’t lose a huge sum and that’s a good start.
Now the UK market is in the toilet, it will be interesting to see whats up next. The UK has the US blue print to copy, so once the dullards of the square mile sniff the coast is clear up we should go. The bottom line is bonds are not safe, so the alternatives are? Certainly not venture capital. So its equities.
However we are in hidsden variable territory, where there maybe many buried bodies about to be exposed, so it pays to remain very vigilant and perhaps ready to buy the bottom of a disaster. However my idea that the US is on its toes and ready to stick save anything short of Godzilla coming on shore, should mean we wont have a 1929,2008 event because if they nip these things in the bud, life goes on.