Summary

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Last week, three banks failed: Silvergate, Silicon Valley Bank and Signature Bank. So, in the span of less than a week, the crypto sector has effectively been "unbanked". It's also hard to see other US banks currently being comfortable servicing the industry given the intense scrutiny it will attract. The Fed and the FDIC have announced a systemic risk exception for Silicon Valley Bank and Signature Bank, all depositors will be made whole and no losses will be borne by the taxpayer. Shareholders and certain unsecured debt holders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law. New Fed 13(3) facility announced with $25 billion from ESF to backstop bank deposits. Fed prepared to use its full range of tools to support households and businesses.

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These bank failures have transferred fear to the crypto ecosystem. Circle's USDC, the second largest stablecoin with $43 billion market capitalization, held an undisclosed part of its $9.8 billion cash reserves at failed Silicon Valley Bank which triggered a major depeg throughout the weekend, which regained parity when the authorities' actions regarding the recovery of funds by depositors were made public.

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The pivot narrative picks up steam again, Goldman and Sachs economists say they no longer expect the Fed to raise rates next week due to the banking-system concerns. Traders seem to agree with them, as US 2-year yields post one of the biggest three-day plunges in history.

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This week is full of sensitive data for the market, US CPI and PPI and the European Central Bank's interest rate decision. It seems that other regional banks are suffering significant falls in the pre market, no doubt this banking crisis will give much to talk about in the coming sessions. It seems history repeats itself, the Fed hikes until something breaks, we are right at this moment.

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Macro and news

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Relevant data for this week:

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Banking Crisis:

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The Federal Reserve has announced the closure of another bank. Signature Bank, the largest cryptobank in the United States, has been shut down by the US regulator. And the arguments could not be more straightforward. After the collapse of Silicon Valley Bank, a "systemic risk" is feared. 

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The Fed promises that "the taxpayer will not bear the losses" and all deposits will be returned in full. The message is that customers who have their money in this bank are protected, but certain shareholders and unsecured debtors are not.

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The closure of Signature Bank is a major blow to the banking sector most closely linked to the crypto world. In less than two weeks, the United States has seen its two most important cryptobanks cease to be accessible. First it was Silvergate and now it has been Signature Bank, located in New York.

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The failure of Silicon Valley Bank (SVB) is something really relevant, we are witnessing the 2nd largest bank failure in U.S. history and the largest failure since the 2008 collapse. SVB is a lending bank for companies in the technology sector that announced heavy losses as a result of the need to sell assets in a rush to meet customer-mandated deposit withdrawals - over 42 billion to be exact! All the alarm bells went off when SIVB was forced to sell a $21 billion bond portfolio to recover this liquidity to meet deposit withdrawals. This sale resulted in a loss of $1800 million, a figure greater than its net income in 2021.

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SVB is a special bank, as its main depositors are technology companies, and the bank has been heavily involved in Venture Capital operations in the tech sector and therefore directly affects the entire startup world. All this means that the consequences of the bankruptcy will not only have isolated effects at a local level on depositors, shareholders and creditors, but will also affect many venture capital and technology companies that had their funding or liquidity in or through the bank. 

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SVB is the second largest bank failure in American history

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Per the FDIC there were 140 bank failures in 2009. The total combined value in assets of those failed banks was $170.9 billion. SVB had $209 billion in total assets. 

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Those failed banks (140) held $170B in total deposits. SVB, by itself, held $175B in deposits. New data shows only 2.7% of Silicon Valley Bank deposits are less than $250,000, which means 97.3% of clients aren't FDIC insured

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SVB had a gigantic investment portfolio as a % of total assets at 57% (average US bank: 24%) and 78% was in Mortgage-Backed Securities (Citi or JPM: around 30% and most importantly they DID NOT hedge interest rate risk at all.

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This whole situation is putting the Federal Reserve between a rock and a hard place, because if it continues with its aggressive rate hike plan, it may break more banks on the way, if it has not already done so..

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The reason traders are worried about contagion in the banking sector: financial firms have big stockpiles of "held to maturity" bonds that don't end up on their financial statements, but are losing market value and flag regulators' attention if sold in bulk.

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Unrealized losses on available-for-sale and held-to-maturity securities totaled $690 billion, up 47 percent from second quarter 2022. The combination of a high level of longer-term asset maturities and a moderate decline in deposits underscores the risk that these unrealized losses could become actual losses should banks need to sell investments to meet liquidity needs

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Summary of FDIC and FED´s bank bail out:

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• All depositors will have access to ALL money on Monday
• Fed announces new “emergency bank funding program”

• Fed to make additional funding available to banks
• FDIC/Fed discussed plan with Biden

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“The Federal Reserve is prepared to address any liquidity pressures that may arise,” the organization stated in a press release, adding that the measures will eliminate “an institution's need to quickly sell [high-quality] securities in times of stress.”

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In a separate statement, the Federal Reserve Board released details about its so-called Bank Term Funding Program (BTFP), which offers bank loans of up to one year, where eligible institutions pledge U.S. Treasuries and other assets as collateral in exchange for loans in the amount of the assets’ face value.

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“These actions will reduce stress across the financial system, support financial stability and minimize any impact on businesses, households, taxpayers, and the broader economy,” the statement said.

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Banking Crisis over crypto

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The market cap of all cryptocurrencies is back above the $1 trillion mark.After a joint statement from the Federal Reserve, U.S. Treasury, and FDIC declared that all depositors of now-shuttered Silicon Valley Bank and Signature Bank will be able to get their funds out on Monday, the battered crypto market turned green.

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US Dollar Coin (USDC), the market's No. 2 stablecoin, regained its dollar peg, returning to a price of 99.3 cents on multiple price indices. USDC had plummeted to a new all-time-low of 87 cents on Friday night after USDC issuer Circle disclosed that it still had $3.3 billion of the cash reserves backing USDC sitting in Silicon 

Valley Bank.

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The current banking chaos and contagion arguably began barely more than a week ago when crypto-friendly Silvergate Bank showed signs of trouble. After numerous crypto companies that used Silvergate (including Coinbase, Galaxy, Gemini, and Crypto.com) said they would stop using it, Silvergate shut down its Silvergate Exchange Network. By Wednesday, Silvergate said it would wind down its operations.

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Just two days later, on Friday, the Nasdaq halted trading of Silicon Valley Bank, which experienced a $42 billion bank run the day before and was reportedly seeking an emergency acquisition. Within hours, regulators had shut down SVB, prompting bank and tech stocks to take a dramatic hit amid fears other regional banks would be in trouble. Multiple crypto and tech startups publicly announced whether they had money in SVB. Then on Sunday, New York State financial regulators abruptly shut down Signature Bank, citing system risk.

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The weekend slump shook confidence in USDC and other stablecoins like USDD, USDP, and prompted doubts about the viability of stablecoins broadly. It isn't yet certain those doubts are quelled just because USDC has rebounded.

Waking up to a mixture of good news & bad news. 

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Good News: SVB depositors made whole & USDC almost re-pegged

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Bad News: They casually closed Signature bank as well. So now, one of crypto's last remaining banks is shut.

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Net-net, still a loss for the industry. In the span of less than a week, the crypto sector has effectively been "unbanked". It's also hard to see other US banks currently being comfortable servicing the industry given the intense scrutiny it will attract.

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The intervention of the FED and FDIC indicating that SVB depositors would have access to "all" of their funds on Monday has saved the market from further declines in the short term. Following the news, BTC and ETH soared after Friday's plunge. However, this may be just the beginning of the volatility, this story is not a matter of just one day, it has many open fronts and many possible collateral effects.

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Binance CEO Changpeng Zhao has announced that Binance will convert the remainder of its $1 billion Industry Recovery Initiative funds from BUSD to native cryptocurrencies, including Bitcoin, Binance Coin, and Ethereum. The reasoning offered by Zhao was the heavy changes that the stablecoin market and banks have faced in recent weeks.

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Macro news:

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As part of his mandated semiannual testimony on monetary policy, Powell spoke Tuesday before the Senate Banking Committee then the day after to the House Financial Services Committee. 

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Heading into the appearances, markets had expected the Fed to raise its benchmark interest rate by 0.25 percentage points at its meeting at the end of the month, and then perhaps two more moves before pausing, with the end point around 5.25%. This changed following Powell's appearance, in which he warned that if inflation data remains strong, he expects rates to rise "more than expected" and possibly at a faster pace than a quarter point at a time. Markets had expected before the start of the banking crisis a half-point hike in March and for the top, or terminal, rate to approach 5.75% before the Fed is done.

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Summary of powell testimony (3/7/23):

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• Peak rate will be "higher than anticipated"

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• Revisions show inflation "higher than expected"

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• Minimal deflation in services

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• Decisions to be made "by meeting"

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• Inflation "to be bumpy"

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Basically, a pivot from hawkish to more hawkish. So what changed? Basically, it was the January inflation data plus signs that the labor market remains remarkably strong despite the Fed’s efforts to slow it down. That made Powell, who only weeks earlier had talked about “disinflationary” forces at play, switch gears and start talking tough again on monetary policy.

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The response in the yield curve was immediate, eliminating any expectation of a pivot.

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However, after the collapse of silvergate bank, silicon valley bank and signature bank, the changes in expectations have been absolutely wild.

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Two-year yields heading for steepest three-day decline since Black Monday of October 1987.

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The pivot has undoubtedly arrived, but not in the way the market expected with a drop in inflationary pressures, but because of a full-blown banking crisis. We will be keeping a close eye on this week's inflation data, but it is unlikely that the Fed will dare to raise rates further with a financial sector that has been in a financial crisis.

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Cryptos: spot, derivatives and “on chain” metrics

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High volatility in crypto asset prices over the last few days. After failing in bullish continuations in the $25000 area, the market experienced an abrupt return to the value, calling into question the show of bought strength initiated at the beginning of the year. Following the FED and FDIC announcement on the recovery of funds from depositors, USDC regained the peg, triggering a relief rally across the entire ecosystem. 

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Bitcoin 06/03/23

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Bitcoin 13/03/23

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Simplifying the analysis and using only the VWAPS, we note that last week's selling stopped right where it needed to stop. Demand has to be able to regain the VPOC of $23000 and the VWAP anchored from highs, it is the big battle to conquer in the short term. We expect high volatility during this week, the banking crisis is not a one-day story and we have ultra-sensitive data for the market, US CPI.

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The market has come to test the target proposed last week, the lower high volume node at $21,000. It is in this zone where demand has reacted.

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Bitcoin 06/03/23 (low timeframe)

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Bitcoin 13/03/23 (low timeframe)

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As we have already explained above, in order to think again that buyers have taken control in the short term, it is absolutely necessary that the VPOC of $23000 is recovered. On the contrary, if the market experiences rejection in this zone, we could think of a bearish imbalance of this entire value area. The last buying trench is clear, the $21000 level.

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In the big picture, the euphoria at the beginning of the year is dissipating and makes us cautious. We are at a delicate moment, effective bearish imbalance and bearish continuations, or failure of imbalance and rotation to accumulation. A long scenario with guarantees would require a clear consolidation above the VWAP. On the other hand, a break below $20.500-$19.500 would trigger a bearish scenario again. This is undoubtedly a key moment.

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Analyzing Binance perpetual futures we clearly observe a loss of buying momentum and a very noticeable market selling pressure (delta) during the last two weeks. 23000$ are important, but in this chart we see the importance of 20500-21500 as the last support. For long continuations we want to see this selling pressure subside in the $23000 area and ultimately at the 20500-21500$ support. Seeing this selling pressure after rejecting $25,000 and approaching the $21,000 support puts us on alert, not exactly what we want to see for long continuations.

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The skew measures the difference between the IV (implied volatility) of OTM puts and the IV of OTM calls.  After breaking the skew levels of the last lows of February, fear returned to the market at an astonishing speed, even reaching the total panic zone. After reaching the panic zone, we have seen how over the weekend the skew has relaxed to a great extent

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skew 05/03/23

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skew 27/02/23

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The time structure of volatility in an extreme steepening situation, clearly reflecting the volatility in which we are immersed.

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06/03//23

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13/03/23

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Classic markets

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06/03/23

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13/03/23

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The market has reached our stated target of 3800 points. This is a delicate area, as its breakout could trigger heavy selling with little support below. We will closely follow the banking crisis and its possible contagion effect. 

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The market after the failure of bullish imbalance has returned the value with a poor reaction of demand. The bulls tried but the damage was already done. With everything that has happened in recent days, sellers have managed to lose this intermediate control, it seems inevitable that we will look for the buying trench of the October 2022 lows.

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06/03/23 SP500 futures big picture

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13/03/23 SP500 futures big picture

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