[Daily] Why the banking crisis helped

Good morning! Welcome to The Daily Moon. It’s a brand new week. And another crazy weekend is now behind us. Nasdaq, according to reports, is going to dive into crypto from the second quarter of this year. The exchange will offer custody services for Bitcoin and Ethereum to start with and will then go deeper into the digital assets business.

This move by Nasdaq is interesting and the banking crisis has something to do with it.

As of Sunday, 2PM IST

The markets were largely flat. Bitcoin saw a small rally backed by whales. Ethereum was bullish on the Shanghai upgrade hype. S&P 500 and Nasdaq were boosted by buying in technology stocks. Back home, Sensex and Nifty ended lower due to selloff by foreign investors.

Why Crypto Made Bank From SVB’s Mess

It happened in just four days. Silvergate Capital, Silicon Valley Bank, and Signature Bank collapsed between March 8 and 11. The market feared a ripple effect. For crypto, it seemed like a Terra moment all over again.

But Bitcoin rallied ~42% and Ethereum is up ~30%. Investors flocked to stablecoin Tether as well. Crypto became a safe haven that wasn’t controlled by regulators.

Decentralised, community-governed, and unaffected by rate hikes, crypto has again become the popular alt.

Now the question remains: What’s the banking connection?

Banks and crypto are frenemies We know that banks are bullish about crypto. They’ve invested in crypto projects, allowed investors to buy crypto, and bought tokens themselves. But it’s also a two-way relationship where crypto companies need banks:

1. To store their reserves and create crypto custody wallets.

2. To get funds to grow and expand the business.

3. To give an on and off ramp between crypto and cash for customers.

So when a slew of banks collapsed, it was a bad signal for crypto projects. Their funds were stuck and customers were miffed. Circle, BlockFi, Avalanche, and Yuga Labs (Bored Apes’ creator) were among the crypto entities exposed to SVB. Yes, the crisis was averted after regulators stepped in, but customers got cautious.

Circle’s USDC depegged from the US dollar for a brief period. That’s because investors thought that the entity didn’t have enough reserves to back the stablecoin.

Where’s this going?We’ll start with the good news. The banking crisis has worked in crypto’s favour and investors have bought and held.

1. Self control: When you hold money in a bank account, it’s under the bank’s control. Banks use your deposits to give out loans and invest. On the other hand, the crypto that you own always stays in your wallet.

2. Community governance: Banks are regulated, which means that any interest rate hikes will make loans expensive.

3. Limitless: TradFi imposes restrictions on large credits and debits. Crypto is limitless, meaning the system won’t ask questions.

TL;DR The risk factors of TradFi don’t apply to crypto. Bitcoin’s pseudonymous founder Satoshi Nakamoto had said in his vision statement as well:

But there’s bad news The crypto averse were convinced that the crisis was crypto’s fault. Closer inspection of the banks’ books revealed bad investment decisions. But even then, the damage is done. Two things can happen:

1. Crypto entities may find it tougher to access capital.

2. The regulator may increase disclosures for crypto lending.

Though banks are not really wary of crypto, a regulatory crackdown may nudge them to maintain an arm’s length relationship.

Winds of changeEven as critics linger in the background, crypto is moving towards mass adoption. Friendlier regulations in countries such as Australia, Hong Kong, Singapore, and UAE have forced the world to take notice.

Euler Hostage Drama Ends

The hacker, who made away with stablecoin linked with Euler Finance, returned some of the tokens back. And to celebrate the return of the tokens, investors went in on EUL, so much so that it rose over 25% in an hour.

That was fastFor one, the entire stolen amount hasn’t been returned, it is closer to 50% than the 90% that Euler had insisted on. It’s not known if the hacker returned all the money but only some has been called out so far.

The lender had also put out a $1 million bounty to help trace back its funds. The hacker, however, also moved a large number of the tokens from their wallet to another.

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