That’s Our 2 Satoshi’s Monthly Roundup - March 2023

March 6, 2023: Silvergate and BTC Ordinals

• Last week provided more evidence that digital assets are back to being an uncorrelated asset set as digital assets reversed and equities gained. While ETH and BTC were only modestly lower week-over-week, many smaller-cap tokens fell 10-20% week-over-week, even as other risk assets, like equities and commodities, gained.
• This past week, overall macro conditions took a back seat to two major events—the delayed 10-K report filing from Silvergate and the Yuga Labs NFT launch on Bitcoin.
• Silvergate experienced another rush of deposit withdrawals from its digital asset clients, such as Coinbase, Paxos, Galaxy Digital, and others, which attempted to disassociate themselves from the bank. These withdrawals likely caused more losses for Silvergate as they needed to sell longer-dated bonds and other assets—presumably at a loss due to rising rates—to meet the withdrawals. The losses reduce its capital ratios further, likely leaving Silvergate undercapitalized.?
• Yuga Labs, the facilitator of Bored Ape Yacht Club, MAYC, Meebits, and many other NFT collections, announced its intention to build on Bitcoin. Yuga Labs described TwelveFold as a limited edition, experimental collection of 300 generative art pieces inscribed onto satoshis on the Bitcoin blockchain. These pieces represent a complete art project and will not have other utility, interact with, or be related to any previous, ongoing, or future Ethereum-based Yuga projects.?

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March 13, 2023: 4 Themes From ETH Denver & an Unnecessary Bank Run

• U.S. equities got crushed last week. Regional bank stocks fell 3x as hard. Digital assets fell even harder. And it’s all because 3 regional banks went down.?
• In short, the business of banking is riskier than most understand, just like the business of pseudo-crypto banks like BlockFi and pseudo-exchanges like FTX were riskier than most understood. They are risky because your assets are not your assets—they are the banks’ liabilities, and if the bank screws up its own assets, its liabilities (your assets) are not so safe.?
• This banking mishap is nothing like that of 2008. In 2008, the assets that banks and insurance companies held were toxic—defaulted mortgages, IG and HY CDS, and other declining assets that had little to no chance of recovering without propping them up artificially. But the “toxic” assets that banks hold today are largely U.S. Treasuries and high-quality MBSs, which are almost certainly worth par but have declined in price simply due to rising rates.
• BTC and ETH outperforming on this news perfectly underscores the BTC objective. After the 2008 Global Financial Crisis left many with a distrust for banks, BTC was designed to be a non-fractionalized banking system to avoid exactly what has just transpired.?
• This year’s ETH Denver event shattered the prior year’s records with over 16,000 in attendance at the main venue and an additional 4,000 participants in many of the side events. Additionally, the BUIDLathon week-long hackathon that preceded the main event attracted close to 10,000 attendees, including many participants, mentors, and judges from prior years’ editions, like notable alumni 1inch, Aragon, and Gitcoin.?
• While this year’s edition did not have a single dominant theme, we narrowed down the top 4 areas where we saw developer talent congregate.

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March 20, 2023: Helicopter Money in Two Different Worlds

• Central banks and regulators stepped in internationally to allay concerns of a burgeoning bank run this week. The moves came rapidly in response to last week’s collapse of Silicon Valley Bank, the following failure (*) of Signature Bank, and UBS’s buyout of Credit Suisse, which have shaken the nerves of investors and policymakers.
• After nearly two years of an uninterrupted march higher, global interest rates collapsed during the week. The MOVE index, which measures interest rate volatility, exploded to levels unseen since the Lehman Brothers fell in 2008.
• The top cryptocurrency by market cap (Bitcoin) saw a 26.4% rise on the weekly candle—its largest move since April 2019. The rip higher comes after BTC fell below $20K just ten days ago.
• While many agree with Satoshi’s vision of Bitcoin as a hedge to systemic risk and inflation, I see Bitcoin much more as a proxy for monetary debasement and financial liquidity. Indeed, some of the strongest long-term correlations to Bitcoin’s price come from measures of monetary liquidity. After a year of tightening conditions, the trend seems to have reversed in a rather dramatic fashion. Regardless of whether banks continue to fail or the system shakes, if the Fed is giving markets more cowbell, Bitcoin will continue to work.

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March 27, 2023: Crypto vs. Banks - An Obvious Answer Masked by Emotions

• Macro regained its position behind the wheel over the past few weeks. The banking crisis and subsequent policy response have taken center stage—only this time, it is affecting digital assets positively at the expense of other asset classes.
• While digital assets gain, macro investors are dipping back into the recession playbook:
• Front-end rates are down sharply, while long rates are only slightly lower (bull steepener—a classic recession trade).
• Gold is ripping and closing in on an all-time high.
• Crude oil is getting smoked.
• Small caps and growth stocks are underperforming large caps and value, while defensives are leading cyclicals.
• Technology is getting valuation support from falling rates.
• The Fed Funds rate started the month below 2-year yields, and is currently 125 bps higher… this spread is now the largest between the Fed Funds rate and 2-year Treasury yield since 2007 and has historically led to quick and aggressive rate cuts.?
• With this backdrop—a Fed that has lost control, a Treasury secretary who has lost touch, and an accelerating global banking crisis—it’s perhaps not surprising that crypto app downloads jumped 15% last week while those of banking apps have fallen around 5%. The market is showing its lack of confidence in our governments and financial systems via a renewed interest in a potential alternative.

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