Two prominent cryptocurrency executives have suggested that if the industry wants to develop productive banking relationships, it must learn from the failures of Signature, Silicon Valley, and Silvergate Bank.
Good morning. Here's what's happening:
Price: Bitcoin, Ether and other major cryptocurrencies have passed another day of green after encouraging inflation reports and persistent hopes for a less hawkish Fed.
Insight: The crypto industry must mature to have productive relationships with banks.
Inflation has fallen encouragingly. Investors continue to want the U.S. central bank to be less harsh.
Bitcoin ushered in a more optimistic atmosphere and continued to rise for much of Tuesday, briefly breaking above $26,000 for the first time since last summer, before falling back above $1,000.
The largest cryptocurrency by market cap was recently trading at $24,936, up about 2% in the last 24 hours. BTC's stagnation comes after two consecutive double-digit gains related to the Binance stablecoin conversion, investors' appetite that the banking sector will not collapse, and the Fed's steady diet that will reverse its hawkish rate hikes.
On Tuesday, the consumer price index (CPI) edged down to 6% last month from 6.4% in January, which seemed to give the Fed a new justification for a dovish monetary policy. Even when core inflation, which eliminates volatile food and energy costs, rises month by month, there is a balancing factor – a slight yearly decline.
Joe Ziolkowski, CEO and co-founder of digital asset insurer Relm Insurance, wrote in an email to CoinDesk: "Bitcoin has soared because liquidity conditions appear to be changing rapidly. "Today's CPI data shows that inflation is slowing.
Ziolkowski noted that the recent banking crisis, involving the collapses of Signature, Silvergate, and Silicon Valley banks, "triggered a federal response, injected significant money into the economy, and reinforced Bitcoin's use case as a decentralized alternative to our existing banking system."
"Investors are clearly showing confidence in this," he wrote.
The CoinDesk Market Index, which measures the overall performance of the crypto market .com, rose 2.4.
U.S. stocks were also encouraged by the CPI report, with tech-heavy Nasdaq and S&P 500 up 2.1% and 1.6%, respectively. But as CoinDesk analyst Glenn Williams wrote in his Tuesday column, the Fed's path forward at its March 22 meeting remains uncertain.
Reim's Ziolkowski noted optimistically, "Given that last year's rapid rate hikes clearly put a lot of pressure on the system, the Fed is now under increasing pressure to slow the pace of rate hikes and possibly even stop them altogether." ”
He added: "The lasting rally of Bitcoin and other digital assets seems to be working. ”
opinion
Banking learning curve in the crypto industry
The voluntary liquidation of Silvergate, the preferred cryptocurrency bank, and the subsequent action taken by regulators to take over Silicon Valley banks, sent shockwaves across the industry.
While depositors will become intact, the shock waves felt by the industry will no longer come from the concept of a loss of funds, but from the loss of industry-friendly banks that are the backbone of the industry.
As CoinDesk recently reported [link], crypto companies have hurt the industry by orphaning the downfall of Silvergate and Signature and the incompetence of Silicon Valley banks.
William Quigley, the co-founder of Tether and now runs the non-fungible token (NFT) exchange WAX, emphasized in an interview with CoinDesk that the collapse of Silicon Valley Bank was based on management incompetence.
It's not a good idea to hold long-term government-issued debt bought when interest rates are low and then have to sell it at a low price to shore up liquidity when its start-up customers stop raising money and start spending, he said, adding that the move should be a challenge, not fatal, for banks.
Quigley said that around June 2022, management should have noticed the impairment of its bonds and government securities and started selling portfolios and absorbing losses, or absorbing more deposits.
"I have served as Chairman of the Audit Committee and as an auditor of the Bank. I know this happens when the decline in deposits accelerates and our portfolio is damaged to the point that we don't have enough money to pay back depositors," he said.
Lack of communication
Management was supposed to keep in touch with the Fed in January, when the Fed was supposed to put the banks into some sort of regulatory phase.
The resulting problem, he said, is a lack of trust. Regulated by multiple federal and state agencies, with clear audit opinions, and an investment grade rating by a federally licensed rating agency, SVB looks like a good bank.
SVBs exist because large banks don't usually give time of day to tech startups and crypto companies.
But that doesn't mean it's impossible.
As CoinDesk recently reported, the crypto conglomerate Digital Currency Group (DCG) has been in fruitful conversations with companies such as Santander (SAN), HSBA, Deutsche Bank, and United Overseas Bank (UOB) in Singapore, as well as fintech companies, such as as Revolout on onboarding its portfolio companies.
DCG is reportedly in dialogue with big banks, but there is no guarantee that they will achieve results. These banks may end up being intimidated by something and refuse to join companies that are siloed by Silvergate-SVB-Signature.
For roughly the past decade, Taiwanese cryptocurrency exchange Maicoin has made fiat transactions with Far East International Bank, which will be classified as a large bank by the Federal Reserve.
Alex Liu, CEO of Maicoin, told CoinDesk that there is no magic in convincing banks to provide fiat pipelines for his exchanges. He was also quick to point out that the root cause of the collapse of the three major banks in the United States was not the cryptocurrency itself.
"It involves activists who can give the impression that they are not bomb-throwing. It helps if you can put on a suit and talk about investor protection, KYC, AML and so on," he said.
He goes on to say that it's also helpful to have a physical address for your headquarters. Maicoin's headquarters are located in an office building in downtown Taipei.
"How many cryptocurrency companies refuse to do that?" He asked.
Crypto banking problems in Asia?
With all this happening, many jurisdictions in Asia, from Hong Kong to Taiwan, are working to establish crypto licensing regimes for retail traders.
Of course, they will look at the US and see what happened, especially considering the collapse of FTX in the last six months, and now 3 banks.
Liu pointed out that there are no regulators or legislators in the United States who have come forward and say, 'Hey, let's ban this.'"
Regulators in Asia will take this as a clue.