Welp, what a way to end the week. Days after Silvergate entered voluntary liquidation, startup-land's Silicon Valley Bank failed Friday in a shocking blow-up.
Wow. Santa Clara-based Silicon Valley Bank (SVB) failed this week in a shocking implosion that sent ripples through startup and venture capital circles. SVB largely serves tech startups (about 44% of all US VC-backed startups) and held $212B worth of assets.
Reports are already emerging of crypto startups (Circle, Proof, BlockFi) being directly impacted by the blow-up, but the full extent of the industry's exposure and of these individual companies is still unknown.
SVB's bank run was triggered after the bank botched their communication of a surprise share sale worth $2.25 billion and a panic-induced sell-off ensued. The suddenness of the news is impacting financial macro health and other big institutions — the Dow Jones US Banks Index is down 11% in the past week. Crypto markets also took a dive later in the week on the news.
This news comes just days after Silvergate capitulated under the weight of repeated 2022 crypto market crashes and regulatory pressure. The bank announced Wednesday that it was voluntarily undergoing liquidation as “the best path forward.” The liquidation process will include the full repayment of all bank deposits.
In related news, Kraken’s chief legal officer Marco Santori said that its plans to launch its own bank were moving ahead despite regulatory uncertainty.
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2. CEXs under scrutiny
Elizabeth Warren is once again writing letters, this time alleging that Binance is guilty of laundering at least $10B in crypto, implementing weak KYC checks, and entangling its Binance.US entity with Binance’s international arm despite claiming the former’s independence.
Meanwhile, Voyager Digital won court approval to sell ~$1B of assets to Binance.US. Bankruptcy judge Michael Wiles ruled this week that the SEC’s arguments for rejecting the sale – that it would violate U.S. securities laws – were invalid.
In a separate saga, New York Attorney General Letitia James is filing a lawsuit against KuCoin, alleging that the exchange failed to register as a securities and commodities broker-dealer, which the regulator says it should have in order to operate its “KuCoin Earn” product .
The lawsuit also echoes the SEC's claims that LUNA and UST are securities, as well as ETH 😬: “The petition argues that ETH, just like LUNA and UST, is a speculative asset that relies on the efforts of third-party developers in order to provide profit to the holders of ETH”.
We'll see where this all goes.
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The Grayscale Bitcoin Trust (GBTC) that was at the center of the Three Arrows Capital collapse last year is in the limelight this week.
GBTC is an investment product that allowed regulated institutions to buy Bitcoin legally. It's meant to mirror Bitcoin in value, but it traded at a premium above Bitcoin’s actual value during the bull, and plummeted in the bear.
This week, judges in the U.S. federal appellate court are questioning the SEC’s decision to reject Grayscale’s application for a Bitcoin ETF last June. Grayscale launched a lawsuit against the SEC in June.
“It seems like it's fine for an agency to say okay, we need some more information, but it seems there's quite a bit of information here on how these markets work together, and the SEC has not offered any explanation… that the petitioners here are wrong,” said Judge Neomi Rao.
Alameda, which owns ~$250M in Grayscale assets, is also suing Grayscale and DCG for charging “exorbitant management fees in violation of the Trust agreements” and deterring shareholders from redeeming their shares.
4. Bankless 2.0 and ETH Denver
Despite a throughly insane week for banks and regulators, clearly our new Bankless website was the biggest news of the week. 😏
Thousands of Bankless Citizens have already claimed their 2023 Bankless Badge – don’t forget yours. Become a Citizen!
Also, if you missed ETH Denver, fret not – check out David’s recap of ETH Denver in the Bankless newsletter this week. Also, watch the Bankless ETH Denver interview series:
The Cosmos community has unanimously voted (with a 99% approval rate) to pass its Cosmos 2.0 “v9-Lambda” network upgrade, after rejecting the vote back in November 2022.
The upgrade, expected to go live March 15, will introduce “replicated security” AKA interchain security (ICS), which allows Cosmos Hub (ATOM) to loan out its economic security to other chains in the Cosmos IBC network.
This lets smaller market cap Cosmos appchains secure the chain without building their own validator sets, while also solving ATOM's longstanding identity crisis and bring value accrual to the ATOM token.
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Not financial or tax advice. Bankless content is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time we may add links in this newsletter to products we use. We may receive commission if you make a purchase through one of these links. Additionally, the Bankless team hold crypto assets. See our investment disclosures here. | Terms & Conditions – Privacy Policy
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