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The Collapse of SVB: Somewhere Between Horror and Hope

The Collapse of SVB: Somewhere Between Horror and Hope

The information presented in this report does not constitute financial advice nor is it a recommendation to buy or sell.


30-Day Retrospective (TL;DR)

  1. Crisis averted: Government intervenes with a multibillion-dollar rescue package for US banks.
  2. Market sentiment: Crypto rebounds after a horror weekend of 3 go-to crypto banks closing down.
  3. The Fed signals not to raise interest rates as high as expected after SVB incidents.
  4. Bitcoin outperformed other asset classes in early 2023 with a 46% return YTD.
  5. Binance USD (BUSD) lost $7.7 billion USD in market cap since SEC Enforcement Action.
  6. Ordinals Protocol: Bitcoin enters the NFT space with over 200,000 inscriptions.
  7. Blockchain developer activity remains strong despite retail skepticism.
  8. Wallet activity: A shift in the user base of Metamask towards experienced users.
  9. Wash trading: 45% of all-time NFT trading volume is linked to wash trading.
  10. Blur: NFT marketplaces encourage wash trading by incentivizing users with rewards tokens.


A banking crisis averted? (Early March Update)

March 8th: Silvergate – Crypto on fire after its go-to bank is closing down

Silvergate, one of two major liquidity providers in the crypto market, will cease operations and liquidate $11 billion in assets.

Silvergate was providing liquidity to crypto companies like Coinbase,, Kraken, and Gemini, making the ripple effect possibly catastrophic., a leading crypto exchange, is already struggling to maintain its fiat on-ramps. These on-ramps are what allow users to convert traditional money (e.g. USD) into cryptocurrency.

March 10th: Silicon Valley Bank – The biggest banking collapse since Lehman Brothers

Silicon Valley Bank (SVB), the 16th largest bank in the U.S., collapsed after its stock fell over 60% from a bank run.

Why is this bad? SVB was the go-to bank for U.S. startups for over a decade. About 50% of all U.S. venture-backed tech & life sciences companies were using SVB to hold their money.

More than 10,000 small businesses and startups are now unable to access $175 billion of their deposits. This puts over 100,000 jobs in danger within the next 30 days.

This is an “extinction level event” for startups and will set startups and innovation back by 10 years or more. All little startups, tomorrow’s Google’s and Facebooks, will be extinguished if we don’t find a fix.

Garry Tan, Y Combinator President and CEO

March 11th: Circle’s USDC – Fragile signs of crypto stability after No. 2 stablecoin lost its peg

On Saturday, USDC lost its peg dropping to $87 cents after news came out that it had over $3 billion trapped in Silicon Valley Bank. Other ‘stablecoins’ like DAI, USDD, and USDP have all depegged from $1.

By Sunday, USDC raised back to $0.9971 but fell back to $0.9909 Monday morning, suggesting ongoing uncertainty.

The idea of stablecoins being ‘always redeemable 1:1 for U.S. dollars’ was challenged once again.

March 12th: Government Intervention – Crisis avoided thanks to a multibillion-dollar rescue package

Within three days, regulators took control of Silicon Valley Bank and Signature Bank to guarantee all their deposits. Doomsday is averted, businesses stay alive, and employees will get paid.

The Fed intervened to prevent a domino effect throughout the banking industry and avoid a recurrence of the 2008 financial crisis

Crypto bounced back above pre-crash levels after the good news.

Market Overview

Crypto Market Good News:

Crypto Market Bad News:

Crypto sentiment rebounds after horror weekend, while stocks stay between ‘Extreme Fear’ and ‘Caution’

The crash of Silvergate and Silicon Valley Bank (SVB) caused investors major headaches over the last week.

However, on Monday 13th of March, crypto rallied to a level higher than before the crash. This comes after regulators intervene in SVB and Binance CEO CZ’s pledge to reinforce the industry with a liquidity injection of $1bn.

Meanwhile, the stock market remains under pressure as investors fear the contagion effect of bank failures spreading.

Going forward, the market will look for directions based on the Fed’s changing monetary policy, in response to the SVB situation.

After the SVB incidents, the Fed signals not to raise interest rates as high as expected

The annual inflation rate in the United States remains elevated but is showing promising signs of decline, dropping to 6% in February 2023. In the same period, the interest rate increased from 4.33% to 4.57%.

The Federal Reserve’s actions to steer interest rates and control inflation will continue to play a crucial role in shaping the economic landscape, and it remains to be seen how these efforts will impact the crypto market in the long run.

Bitcoin has outperformed other asset classes in the first months of 2023

In the first two months of 2023, Bitcoin was the top-performing asset class with a return of 46.4%. Stocks and high-yield corporate bonds also had positive returns at 5.4% and 1.9%, respectively.

Other asset classes had more modest returns, with government bonds and commodities experiencing slight losses of -0.3% and -4.0%, respectively. Oil had the worst performance with a return of -7.9%.

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Stories of the Month

SEC vs. Crypto: Regulatory Crackdown in the U.S.

In an SEC (U.S. Securities and Exchange Commission) press release on 7th Feb, Crypto-Assets and emerging technologies were named as one of the agency’s 2023 priorities. 

On the 13th of February, the government agency ordered Paxos, the company behind Binance’s BUSD stablecoin, to halt the minting of new coins starting on the 21st of that month. The announcement led to a $7bn+ net outflow from the stablecoin.

The SEC is increasing its efforts to regulate cryptocurrencies after the FTX collapse. They will focus on monitoring and taking action against those who offer or advise on crypto-related assets without proper authorization.

Two days after the press release, the SEC also settled charges with the crypto exchange Kraken. The crypto exchange agreed to pay $30mn in fines and discontinue its crypto staking program in the US.

Ordinals Protocol: The Missing Utility Piece in the Bitcoin Ecosystem

The Ordinals protocol enables users to add data, such as images and videos, to the Bitcoin blockchain. Essentially, it allows NFTs to be created on the Bitcoin blockchain instead of Ethereum.

It’s a noteworthy moment in Bitcoin’s history, as for the first time, Bitcoin is being used for a purpose beyond its original design for peer-to-peer monetary transactions.

The Ordinals protocol is built directly on Bitcoin (L1). The hype around Ordinals NFTs in February 2023 has led to significant investment, including a collection by Yuga Labs that raised $16.5 million in 24 hours. It also contributed to STX’s (a Layer 2 (L2) solution for Bitcoin with NFTs) market capitalization of over $1 billion.

Ordinals are seen as the missing piece to make NFTs “complete” by eliminating the need for off-chain data. They create digital artifacts through inscriptions that can’t be changed, making them potentially valuable for censorship-resistant transmission of knowledge, like digital hieroglyphs.

Blockchain Adoption

Blockchain Developer Activity sending mixed signals

During the first three quarters of 2022, on-chain (Ethereum) developer activity slowed down considerably. However, the last quarter saw a significant resurgence, with the number of deployed smart contracts almost reaching its previous peak from 2021, totaling 4.6m deployed contracts.

It is worth noting that smart contract deployments have a significant lead time, so it is possible that many of the deployed contracts were planned and started during the bull run.

Tool downloads for Ethereum developers reach a new all-time high

An additional indicator of development activity is the number of downloads for popular libraries that make it easier for developers to build new programs. The most popular library for Ethereum development, ethers.js, saw peak development activity in February, with 1.1m weekly downloads, despite the usual drop in development around the new year.

As this number also includes re-builds of existing applications, it is a good indicator of the overall size of the ecosystem, showing that the upwards trend has somewhat slowed, but is still there. 

Developer activity across all chains paints a different picture

The total number of active developers in all blockchain ecosystems has seen a slow decline ever since its height in June of 2022:

Note: The dip in activity in December (and partly also January) is normal as developers take time off for the holidays. Furthermore, the end of the year is a common time for positional rotations in/between companies.

The number of weekly active developers fits together well with the number of ethers.js downloads. Developers keep building, albeit be it at a slower speed than during the height of the bull run.

A shift in the user base: Experienced users dominate wallet activity during the crypto bear market

At its peak towards the end of 2021, there were 235,918 monthly active Metamask wallets, which has since steadily declined to around 134,547 monthly active wallets as of February 2023.

Since the second half of 2022, there has been a decrease in new wallet activity, coinciding with the onset of the bear market and increased crypto skepticism from new users due to scandals such as FTX.

This indicates a shift toward experienced users who now make up a larger percentage of the active user base in a less hype-driven market environment.

Note: Metamask is one of the leading self-custodial blockchain wallets. The analysis only considered unique active wallets.

Wash Trading – Unveiling the Truth about the NFT Market

Wash trading is a type of market manipulation where traders buy and sell the same NFTs to create the illusion of high trading volume and market activity. This allows traders to artificially inflate the price of an NFT, and then sell it at a higher price.

Wash trading is a type of market manipulation that is used in the NFT space to create a false perception of market demand. This can harm investors who purchase overvalued assets from artificially inflated prices by bad actors.

45% of all-time NFT trading volume is linked to wash trading

In 2022, wash trading volume in the NFT market rose up to $32 billion USD – a staggering 25x relative to the previous year. This is the dark reality of the emerging space without regulators.

Platforms like Blur encourage wash trading to win the marketplace war

Blur is a new NFT marketplace that has quickly risen to prominence, overtaking OpenSea in trading volume in a matter of months. According to Dune, Blur now makes up about 80% of the weekly trading volume for Ethereum NFTs, relative to OpenSea, despite having less than half of the user base.

The secret? Airdrop farming.

Blur has recently launched its own crypto token, BLUR, which is rewarded to users for their ‘trading activity’ on its platform. Many experienced web3 users expect a potential bank run given the unsustainable tokenomics model, on top of having 80% of trades flagged as ‘inorganic’.

Additionally, half of the liquidity on Blur is controlled by only 300 wallets – an extremely dangerous concentration.

Digital creators are also being impacted negatively as marketplaces like Blur do not enforce royalty fees. This goes against the original idea of using NFT technology to reward artists.

One can draw many parallels to the rise and fall of another marketplace LooksRare where retail investors are now left holding an airdrop token that lost 95% from its peak while the developer team cashed out.

We asked Wale Swoosh, a domain expert in the web3 space, on his opinion on the impact of Blur on the NFT market:

Blur has made NFTs pretty fungible. Unless you really own a grail, everything is considered a floor NFT now. The art, and some say the projects themselves, don’t matter that much anymore.

@wale.swoosh, Web3 Researcher

NFT marketplaces incentivizing users with reward tokens are largely to blame for the practice of wash trading

Despite being aware of this manipulative behavior, these marketplaces have failed to take action, instead rewarding wash traders with nearly $600 million worth of tokens in 2022.

This highlights a serious issue of ethics and regulation in the NFT marketplace. To promote long-term stability and protect both investors and the NFT market, addressing wash trading is crucial. Stricter regulations could reduce abuse by criminals and establish fair market practices and transparency as the market continues to grow.

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