Daily Market Update: Mar 13, 2023

March 13, 2023

BTC is currently trading around $23,600 and ETH around $1,650. Notable gainers in the last 24 hours are CFX, SNX, and MKR. The global crypto market cap is ~$1.10T, up ~11.7% over the last day. DeFi Total Value Locked is ~$46b and BTC dominance is around 45%.

Equity markets are down this morning as banking contagion fears continue. After a run on crypto-focused Silvergate bank caused management to announce its voluntary wind down on March 8th and a similar run on Silicon Valley Bank (SVB) caused the California financial regulator to take possession of SVB on Friday, Signature Bank was seized by New York State regulators yesterday, purportedly due to similar mass deposit withdrawals. The Treasury, FDIC, and Federal Reserve followed with a joint statement saying that all depositors of Silicon Valley Bank and Signature will be made whole. In addition, the Federal Reserve introduced a new Bank Term Funding Program allowing banks to borrow cash using approved securities valued at par as collateral (despite bond prices generally being much lower than par due to rising rates) as an additional means to generate liquidity without needing to sell securities during times of stress and to instill confidence in the banking system. It, however, does not appear to be enough thus far, with several regional bank stocks down 60% or more. And banking fears appear to be spreading with many large European bank stocks down 10%+ today. Investors will be closely watching whether the U.S. government does more to calm depositor fears.

The challenges in the banking sector have particular relevance for crypto as the operations of the industry’s most prominent TradFi service providers in Silvergate and Signature have now ceased. For context, Silvergate and Signature ran the two prevalent exchange networks (SEN and Signet), enabling clients to send and immediately settle U.S. dollar transfers to others on the network 24/7/365. These services served an important function for moving liquidity across exchanges quickly, and liquidity in U.S. dollar crosses may falter in the short term as a result. The resiliency of crypto performance after Signature’s collapse remains a surprise, in our view.

USDC also remained in the spotlight over the weekend, with the stablecoin trading as low as $0.878 on fears that some of its cash reserves were held at the failed Silicon Valley Bank. Circle confirmed this to be the case on Saturday, stating that $3.3b of USDC reserves (8% of the total) were trapped at SVB but that it would fully cover any shortfall using corporate resources, and USDC partially recovered to $0.96. And with the recent government announcement that all Silicon Valley Bank depositors will receive their money back in full, USDC is near its dollar-peg once again, last trading at $0.996.

Lastly, this weekend’s series of events caused common macro and policy narratives to shift on a dime. The 10y treasury yield has fallen ~22 bps to 3.47%, and Fed Fund futures are now pricing in a 35% chance of a pause at the March FOMC meeting for the first time in over a month, with the chance of a 50 bp hike converging to zero. Elsewhere, there’s an abundance of data releases this week, including U.S. CPI tomorrow, and an ECB interest rate decision and monetary policy statement on Thursday that’s followed by Eurozone CPI on Friday.

GSR’s official statement on the recent calamity can be seen here: https://twitter.com/GSR_io/status/1635231820169236480

Other notable news includes: Circle tapped Cross River Bank as its new commercial banking partner for the automated creation/redemption of USDC, further announcing that it expanded its existing partnership with BNY Mellon to now assist with USDC redemptions in addition to custody; contagion from USDC quickly spread to other stablecoins including DAI and USDD; HSBC acquired the UK arm of SVB; BCB Group paused its U.S. dollar payments pilot for the crypto industry after Signature’s demise; popular DEXs Uniswap and Curve realized record trading volume amidst the stablecoin contagion; the USDT balance in Curve’s 3pool temporarily fell below 2% as traders exited USDC over the weekend; MakerDAO launched an emergency proposal to limit its USDC exposure; OKCoin paused its USD on-ramp after Signature’s collapse; Binance announced it would convert the $1b of BUSD stablecoins remaining in its industry recovery fund initiative to BTC, ETH, BNB, and other tokens amidst the calamity; DeFi lending protocol Euler Finance’s token fell more than 50% after the protocol was exploited for ~$197m; one Ethereum address liquidated nearly ~500 Moonbirds on Blur for a material loss; Brevan Howard took over Dragonfly Capital’s Liquid Opportunities fund; digital asset funds had their largest weekly outflow on record; one trader swapped $2m of 3CRV LP tokens for $0.05 of USDT after failing to set slippage parameters and routing the transaction through a dead pool with $2 of liquidity; and, PeopleDAO was hacked for $120k of ETH after its monthly contributor payout form on Google Sheets was disseminated with edit access mistakenly left on, enabling the hacker to insert their address.

Matt Kunke, Junior Strategist | TwitterTelegramLinkedIn
Brian Rudick, Senior Strategist | TwitterTelegramLinkedIn

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