Digital assets had another week of strong performance in contrast to the ongoing banking industry meltdown, before pulling back slightly following the FOMC meeting.
Bitcoin experienced double-digit growth for the second week in succession, hitting a high of $28,800 ahead of Wednesday’s FOMC meeting, before pulling back slightly following assurances of future rate hikes
This was Bitcoin’s highest price since mid-June 2022, up from a Thursday low of $24,520
Bitcoin finally managed a clean break above the $25,000 level, leading to a sustained run above $28,000 from Monday to Wednesday
Despite falling sharply following the FOMC meeting in which Jerome Powell indicated no imminent rate cuts, weekly growth remained strong; Bitcoin’s current price of $27,700 is up 12.3% from last week
As we approach the end of March, Bitcoin could register its best quarterly performance since Q1 2021
New research from Galaxy indicated that the amount of Bitcoin held in profit (last moved on-chain when the spot price was lower than currently) is 75%, the highest level since April 2022
While the S&P 500 is down around 1.9% over the last month, and up about 3% year-to-date, Bitcoin is up around 14.8% and 65.4% respectively in the same timeframes
At its height this week, Bitcoin’s YTD return exceeded 70%
Ether broke $1,800 this week, with a $1,653 low and a $1,839 high
Ether’s current price of $1,759 showcases 6% growth
Total Ether supply declined slightly, but annual issuance rose to near-equilibrium, at -0.07% yearly
Overall market capitalisation hit a weekly high of $1.19tn, and currently sits at $1.16tn
According to industry monitoring site DeFi Llama, total value locked in DeFi this week across all blockchains and platforms grew to $49.2bn
More chaos in global banking markets once again provided an inadvertent endorsement for digital assets, which avoided many of the issues proven to plague banks. Bitcoin was the main beneficiary, hitting double-digit growth again en route to a 70% year-to-date return. Beyond banking, institutions like BlackRock, Fidelity, and Microsoft showcased a continued commitment to the asset class, Hong Kong once again touted its crypto credentials, and Taiwanese regulators indicated a move towards “self-discipline norms” within their regulatory norms; but on the other side of the coin US regulators appeared to grow increasingly adversarial, with new enforcement actions and Wells Notices issued.
In his annual investor letter, BlackRock CEO Larry Fink outlined his thoughts on global markets, as well as forecasting future developments
He of course touched on the current banking crisis, opining that liquidity mismatches in banking could be the industry’s “third domino to fall”; the first two being rapid rate hikes, and asset-liability mismatches as evidenced by SVB and other banks
Speaking about the financial strain on governments—caused by their own monetary policies—he claimed that “After years of global growth being driven by record high government spending and record low rates, the world now needs the private sector to grow economies and elevate the living standards of people around the globe”
Regarding digital assets, Fink wrote “beyond the headlines–and the media’s obsession with Bitcoin–very interesting developments are happening in the digital asset space. In many emerging markets–like India, Brazil and parts of Africa–we are witnessing dramatic advances in digital payments, bringing down costs and advancing financial inclusion”
Additionally, he confirmed that although he welcomes more regulation, BlackRock remains committed to digital assets; “we believe the operational potential of some of the underlying technologies in the digital assets space could have exciting applications. In particular, the tokenization of asset classes offers the prospect of driving efficiencies in capital markets, shortening value chains, and improving cost and access for investors”
This followed sustained double-digit daily losses by First Republic, including a 17% fall the day the rescue package was announced
However, not even a $30bn liquidity injection was enough to assuage markets; First Republic shares fell a record 47% on Monday, after a weekend Wall Street Journal report indicated they already required a new rescue deal
Signature’s real-time payment business, Signet, will remain under the control of the FDIC
The Financial Times published an opinion piece concerning the collapse of banks like SVB, claiming that the current crisis “makes the case for digital currencies”
FT European Economics commentator Martin Sandbu wrote “a central bank digital currency would provide precisely what seems to be missing today: a means by which businesses could keep cash completely safe, without any need for banks”
The biggest banking news concerned Credit Suisse, the beleaguered Swiss giant who suffered multiple days of major losses following a disclosure that they found “material weaknesses” in their financial reporting
The deal was not without controversy; bondholders were wiped out, and a nine billion CHF guarantee on possible losses could hit taxpayers in the pocket
Barclay’s strategist Joseph Abate believes that “Total outstanding advances from the FHLBs now likely exceed $1.1 trillion”
Additionally, central banks in Britain, Japan, Canada, Switzerland, the EU, and US all pledged to cooperate on expediting international movement of US dollars, directly from the Federal Reserve
Despite all the upheaval (and acknowledgement of possible future government intervention), Janet Yellen claimed that “the US banking system remains sound”
All of the above combined to provide more positive publicity for digital assets—market behaviour seemed to indicate that uncertainty in traditional finance, exacerbated by opaque practices and reported mismanagement, benefitted a sector characterised by decentralised power distribution and the transparency of blockchain technology
Banks have lost trust, whilst the “trustless” nature of DeFi—removing the absolute need to trust intermediaries—has restored some enthusiasm to digital assets
As FT editor-at-large Gillian Tett noted in a Bloomberg interview; “The root to the word ‘credit’ comes from the Latin word meaning ‘trust’, and without trust, finance is worth naught. And what’s happening now is that suddenly investors are waking up in a panic and scouring all the banks for things they think might be untrustworthy or problematic”
She added “all of these problems have been there for a long time, but the market is suddenly waking up, seeing them, and losing trust—or credit”
Ark Investments’ Cathie Wood believed broken banks benefit Bitcoin; “Fully decentralised, fully transparent, auditable, which is addressing all of the banking problems right now… There’s no central point of failure in Bitcoin… The behaviour of the price through this crisis is going to attract more institutions”
Wood also noted that “In the beginning of the crisis, it seemed like regulators wanted to blame crypto instead of the significant rise in interest rates and the deposit outflows. Now we’re seeing it as a solution to the problem, but the regulators are still reticent”
She went on to claim regulation was threatening US innovation in the blockchain space
Kunal Goel of crypto intelligence firm Messari, speaking on Monday, outlined a popular sentiment in the sector, saying “The current turbulence within the US banking sector, potentially leading to a more relaxed Federal Reserve stance, reinforces Bitcoin’s dual role as a hedge against traditional finance and a credible risk asset”
Bitcoin’s previous endorsements as a non-security have helped the industry leader outperform several crypto assets with smaller market capitalisations, amidst an aggressive and some would say hostile regulatory crackdown in the USA
Industry-adjacent assets also benefited; digital asset exchange Coinbase enjoyed its longest winning run ever on the stock market, with a 7-day rally of nearly 60%, and almost 140% year-to-date growth
Brandon Mulvihill and Anthony Mazzarese, two former leaders within Jefferies’ forex division, launched a new digital asset exchange focused on high-frequency trading
Called CrossX, the exchange raised $6.35m in seed funding from entities including quant traders Two Sigma and Nomura’s digital asset arm Laser Digital
Two Sigma CTO Jeff Wecker said the firm was “excited to support CrossX… as the digital assets space evolves, diverse and reliable execution venues for institutional trading are critical”
The founders said that the exchange launch was delayed due to last year’s inclement market conditions; “every time there’s a market dislocation, companies need to stop and reassess their own risks internally”
Based in London, parent company Crossover currently has 9 employees, with plans for “moderate” headcount growth this year
Hong Kong continued their recent pivot towards a pro-crypto regulatory environment in an attempt to position themselves as a key Asian hub for the sector
Financial Services and Treasury secretary Christopher Hui said they’ve had an “overwhelming” response to this policy shift, with over 80 institutions enquiring about expanding their business into Hong Kong
He told Bloomberg “Hong Kong is one of the pioneers in the world in terms of having a holistic regulatory regime for virtual assets more broadly, rather than crypto per se”
Hui cited Hong Kong’s proximity to the mainland as a key “advantage”
Nikkei Asia reported that the city may become an outpost for industry businesses from the mainland
“Hong Kong's campaign to become a regional cryptocurrency hub has attracted a steady stream of business executives from mainland China looking to explore opportunities in the sector despite Beijing's crackdown on virtual assets”
One Chinese Web3 entrepreneur relocating to Hong Kong told Nikkei “It is a grey area in the mainland… There is clarity and a sense of safety in Hong Kong that would allow me to flourish”
Following a limited beta launch, Fidelity quietly opened up their crypto offering to all retail customers; a potential audience of over 37 million
Users with Fidelity brokerage accounts can now trade Bitcoin and Ether commission-free
Fidelity will earn revenue on a price spread of no more than 1%
This signals continued enthusiasm for the asset class from Fidelity, building on positive statements from their CEO Abigail Johnson and numerous patent filings late last year
What happened: Regulatory news—Asia supports, US antagonises
How is this significant?
Alongside Hong Kong, Taiwan also came out with greater regulatory clarity this week
Huang Tien-mu, head of the Financial Supervisory Commission confirmed that they will serve as main overseer for the asset class on the island
He told parliament that the FSC will initially concentrate on transactions and payments, but that alternative applications like NFTs won’t fall under their purview
It appears that they will lean towards a Japan-like model of soft supervision, as “self-discipline norms” will be discussed with “relevant industries”
However, in the USA, recent regulatory crackdowns continued as the SEC brought more enforcement actions
The White House published a report taking a dim view of digital assets, with some industry observers believing it could signal an openly adversarial position from the current administration
Late on Wednesday, Coinbase—the only publicly-traded US exchange—announced they had received a Wells Notice from the SEC, warning them of potential securities law violations
Coinbase chief legal officer Paul Grewal stated in a blog post “Although we don’t take this development lightly, we are very confident in the way we run our business—the same business we presented to the SEC in order for us to become a public company in 2021”
The blog also noted that Coinbase met with the SEC 30 times over a 9 month period, without any progress on proposed registration or regulatory clarity; “the SEC asked us to provide our views on what a registration path for Coinbase could look like—because there is no existing way for a crypto exchange to register. We developed and proposed two different registration models. We spent millions of dollars on legal support to build these proposals and repeatedly asked for the SEC’s feedback. We got none”
Additionally, Coinbase claim the SEC cancelled one day before a January meeting at which they’d promised feedback; “We now understand that there is disagreement within the Commission itself on how to proceed with a registration path. This was just two months ago”
Finally, they stated their belief that the US needs more guidance, not more enforcement; “Tell us the rules and we will follow them. Give us an actual path to register, and we will register the parts of our business that need registering. In the meantime, the U.S. cannot afford for regulators to continue to threaten the good actors in the crypto industry for doing the same legal and compliant things they’ve always done”
Former White House chief of staff Mick Mulvaney stated in a Bloomberg interview that he feared there is a systematic effort to de-bank digital asset firms in the US and squeeze them out of the financial infrastructure needed to run businesses
“I don’t want to think the government would actually do that, but then I weight that against the fact that I saw that happening in other industries when I was in the House Financial Services Committee”, referring to “Operation Chokepoint” during the Obama administration
Added Mulvaney “We’re starting to hear rumours of the same sort of thing within crypto… it’s getting harder and harder to find someone to give you the old-fashioned banking you need to operate… I hope it’s not true, I feat that it might be”
Despite hostility from agencies like the SEC, there remains regulatory support on a state level; Texas legislators filed a bill to protect the rights of local Bitcoin holders and miners
Belgian regulators also made headlines for industry hostility this week, following guidance that all crypto-related advertising must carry the disclaimer “The only guarantee in crypto is risk”
USDC stablecoin issuers Circle announced that France will play host to their European headquarters, citing a supportive regulatory environment under Macron’s policies
CEO Jeremy Allaire said “Both for commercial and policy reasons, we believe that France is the right centre for us as we look to scale this business in Europe”
One motivator for the move is their recent development of EUROC—a new Euro-pegged stablecoin backed 1:1 with fiat Euros
Binance and crypto.com have also recently picked Paris as a European hub, where about 65 industry players have already registered
In other Circle news, USDC continues to face record levels of redemption after it briefly de-pegged following exposure to Silicon Valley Bank
Redemption currently outpaces issuance, with about $12.2bn burned (i.e. redeemed for fiat backing) since the beginning of March, versus about half as much issued in that same timeframe
As part of ongoing bankruptcy proceedings, greater details on FTX’s financial state were revealed in court this week, following exhaustive investigations by advisors
In total, it was determined that “Assets across Sam Bankman-Fried’s crypto conglomerate totaled about $4.8 billion against debts of roughly $11.6 billion when FTX and affiliates crashed into Chapter 11 protection”
This equates to a $6.8bn gap, compared to previous $8bn estimates
One key aspect of the findings was that FTX.US had an $87m shortfall, despite Sam Bankman-Fried’s repeated assertions that it was always fully solvent
On Wednesday, it was announced that FTX Group would recover $404m of cash previously invested in hedge fund Modulo Capital
State Street ended their collaboration with crypto custodians Copper, after the latter ended their enterprise division amidst headcount reductions due to crypto winter
A State Street spokesperson said that “the regulatory environment has continued to evolve”, but confirmed they “will continue to build on [our] digital strategies within [our] own respective product development approaches”, including “a multi-faceted solution for both tokenized securities as well as native tokens”
What happened: VC news
How is this significant?
This week saw numerous 8-figure (and above) raises announced in the digital asset space
CCP Games secured $40m investment for a new title set within the intellectual property of popular and long-running game franchise Eve Online
This title will be Web3-enabled, “to deliver incredible player experiences at the intersection of best-in-class game design and blockchain technology”
According to TechCrunch, “The capital will be deployed over the next couple of years into projects at pre-seed and seed stages building infrastructure, applications and tooling for DAOs and open communities with checks ranging from $100,000 to $1 million”
Technology giant Microsoft appear to be building and integrating its own digital asset wallet into their Edge web browser (formerly Internet Explorer)
Microsoft partnered with Ethereum development team Consensys to build the non-custodial wallet, with a built-in swap functionality featuring Ether and numerous stablecoins
Other browsers like Opera and Brave also feature native crypto wallets, but as the third-largest browser by market share globally, Edge could streamline the DeFi experience significantly
When asked about the feature, discovered by an independent beta tester, Microsoft commented “At Microsoft, we regularly test new features to explore new experiences for our customers. We look forward to learning and collecting feedback from customers but have nothing further to share at this time”