16th March 2023 - It's about the banks.

tl;dr

It’s all about the banks, but possibly not in the way one might think.

Market Snap

Market Wrap

After that stunning move at the beginning of the week, wrong-footing many people, a period of consolidation is to be expected. And of course, the psychologically important level of $25k will form the battleground over which the leveraged children will fight it out.

We haven’t seen chart squiggles by techies for a while, so just for fun with no serious intent, here is a recent analysis that we all wish to be true:

This exciting piece of work, by Charles Edwards, CEO of Capriole, has been explained as:

“The bump-and-run reversal bottom is a bullish reversal pattern that begins with a series of descending peaks. Excessive speculation drives prices down until reaching extreme lows. The price action then reverses direction to the upside and marks the end of the downtrend.“

If only life were that simple.

Charles’ target is six-figures, so I do hope he is right.

Curious Cryptos’ Commentary - It’s all about the banks

HSBC has taken ownership of SVB (Silicon Valley Bank) UK’s assets, liabilities and – I assume – its staff following the collapse of SVB at the end of last week.

SVB UK’s assets are quoted at £6.7bn vs £5.5bn for which HSBC have paid a grand total of £1.

To make £1.2bn from just a quid you would have had to buy £1 of BTC when it was trading at around a cent. Even if there are some questions around the valuation of SVB UK’s assets and its business model, that looks like an extremely generous trade to me.

I suspect whoever in the machinery and bureaucracy of the government who signed off on this deal will soon resign and be heading for an executive job at HSBC.

Curious Cryptos’ Commentary - It’s all about the banks

Barney Frank used to be a member of Congress and was the driving force behind the Dodd-Frank Act. This legislation, designed in the aftermath of the GFC (Global Financial Crisis), severely hampered banks’ ability to use their balance sheet for proprietary purposes. Trading desks could still flex balance sheet muscle but limited only to situations where assets were held for the purpose of facilitating customer flows.

Though widely praised by the popular press, those commentators got it all wrong yet again.

Driving risk away from regulated banks into the unregulated sphere is merely an exercise in bottom covering by, and for, the regulators. Far from reducing risk, it increases systemic risk, it’s just that no-one knows by how much, and where it is held.

…

Frank is now a board member of Signature Bank. In a delightful twist of irony, he has claimed that the shuttering of Signature Bank on Sunday by the New York Department of Financial Services was simply motivated by the regulator’s desire to move crypto business out of the regulated sphere.

Reap what you sow, and all that.

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There are lots of shouty people delivering this same message on Twitter and other places. This message was also partly responsible for the common misperception that the beginning of this week would see crypto prices crater in the wake of the collapse of three crypto and tech focussed banks.

But it’s not just shouty people who know not of what they speak that are raising the same concerns.

Sheila Warren, CEO of Crypto Council for Innovation commented:

“… (this denial of banking access) would mark a seachange for the approach to innovation and entrepreneurship in the U.S., signaling that the U.S. is choosing not to be competitive in the tech space and would prefer that unregulated parts of the economy and other countries lead."

Sheila has her own axe to grind, but I think she is overplaying her hand.

The US is becoming increasingly hostile to crypto business, but that business is being driven to the EU, not to “unregulated parts of the economy”, and not necessarily for the reasons she suggests.

Curious Cryptos’ Commentary - It’s all about the banks

In any case, the banking options open for crypto business in the US remain wide and varied even including J.P. Morgan whose CEO, Jamie Dixon, often hangs out with Warren Buffet, CEO of Berkshire Hathaway, so that they can encourage each other in their excessive and downright offensive criticism of cryptos.

To prove this point, right on cue, Fidelity have now gone live with Fidelity Crypto allowing any member of the public to buy and sell BTC and ETH, commission free, but with a maximum 1% bid-offer spread.

Withdrawals are not yet permitted, but for most people that is not a concern. Anyone wanting to get involved in alts, or DeFi (decentralised finance), do not form the client base being targeted by Fidelity. By providing a secure custodial solution, this initiative opens the door to crypto investing to anyone who has the slightest familiarity with stock investments.

Fidelity Crypto will be a key part of the process of global adoption of cryptos by the retail investor base.