Black Swan Events: Crypto Goes Unbanked |Bankless Africa Weekly Newsletter
This is the Bankless Africa Newsletter, your one-stop plug for well-curated and up-to-date crypto and web3 news around Africa.
Gm! A new BanklessAfrica issue is here again!
Last week, we discussed risk management in crypto and web3. But, we missed telling you that personal risk management isn’t sufficient as there are other factors beyond your control. One of such is the crumbling of big banks where centralized exchanges store your crypto funds.
Ever heard someone say the Big banks are too big to fail? Think again! Three big crypto banks have crumbled in the last few days and there is FUD in the market.
Will there be more crashes? How will these actions affect the web3 ecosystem?
These questions will be answered in this issue. We'll also discuss:
The tanking of Credit Suisse Bank stock value
Arbitrum’s forthcoming airdrop
Bankless Africa selection for DAO drops' retroactive public goods funding
Guess what? BanklessAfrica just made the cut for round of DAO drops! They're one of the 50 game-changing projects selected from across the Ethereum ecosystem to receive funding in a totally decentralized way. And get this: it's all happening through select wallets within the Ethereum community. The funders are chosen based on their wallet activity and given points to divvy up among the chosen projects. How cool is that?
If you’d like to learn more about the funding process and meet all the nominees, check Bankless Africa on Twitter.
Black Swan Events: Crypto Goes Unbanked
It's been a wild ride in the financial world these past few weeks, with some major players taking a tumble. Silvergate, the bank that facilitated the movement of money in and out of the crypto market, announced that they're winding down operations and liquidating $11B in assets. And last week, Silicon Valley Bank (SVB), the go-to bank for tech startups, went under, leaving thousands of companies in the lurch.
But wait, there's more! Signature Bank, a big lender in the crypto industry, has also been shut down by regulators. What's going on here, and why should we care?
Let's start with Silvergate.
Silvergate’s collapse is a big deal because they were one of only two major traditional finance players that allowed companies to move money in and out of the crypto market.
With them out of the picture, crypto exchanges will struggle to stay liquid. Silvergate was a reliable bridge to fiat. Digital asset inflows are going to slow down, and mass adoption will take a hit. Silvergate’s liquidation is a tough blow to the crypto market; potential users might be turned off without the efficient platform that Silvergate provided.
Next up is SVB.
Silicon Valley Bank was a staple for tech startups in Silicon Valley, with nearly 50% of all U.S. venture-backed tech companies using them to hold their funds. But it turns out that SVB mismanaged those funds, leaving thousands of companies wondering if they'll even survive.
The effects of SVB's failure will bleed into the stock market, the startup world, and, yes, even crypto. In fact, Circle, the issuer of the USDC stablecoin, announced that $3.3B of its reserves are stuck on SVB. As a result, USDC depegged from $1. Let’s not forget about Blockfi, the bankrupt crypto lender with $227M stuck on SVB.
And finally, Signature Bank.
This bank was a big lender in the crypto industry and had $110B in total assets and $88.6B in total deposits. Depositors were to get full access to their funds this week, but equity and bondholders are out of luck. So, crypto firms that had invested in Signature bank will take a hit.
The closure of three major fiat on-ramp/off-ramp partners for crypto companies will only make it harder for people to get into crypto in the first place.
But it didn't end with these three banks - FUD started for Credit Suisse, one of Europe's finest banks.
There was serious panic everywhere after Credit Suisse's stock plunged over 78% from a 1-year high of CHF 7.38. However, on Thursday morning, there was an insane surge. This institution’s shares skyrocketed 40% - the biggest pump ever recorded - thanks to the Swiss National Bank's promise to provide funding.
Apparently, Credit Suisse plans to borrow up to 50 billion francs to "strengthen its liquidity." This news restored faith in the institution. Regardless, Credit Suisse CEO, Ulrich Koerner, is already defending the bank's health and claiming these actions are decisive. Even the top shareholder is dismissing any panic as "unwarranted."
This institution isn’t out of the woods; there are still some concerns. According to FX analysts at ING, overall confidence in Credit Suisse may remain fragile, especially since pressure on US regional banks remains unresolved.
So what does all of this mean for the future? It's hard to say, but it's clear that the financial world is in flux. We might see big industry players forming their own banks, like Kraken's recent announcement about creating Kraken Bank, or we might see more traditional banks stepping in to fill the gap. Others might resort to sketchy, unregulated banks, which would be risky for customers.
The future of the crypto market hangs in the balance and depends on the performance of the few banks that stick around. No doubt, it will be a bumpy ride.
🥁 African Adage
Adage: When the elephants fight, it is the grass that suffers.
Meaning: The banks that engaged in risky behavior were the "elephants" in this adage, and their actions had negative consequences for ordinary people, who were the "grass" in the proverb. When the big banks collapsed, it was the grass, or ordinary people, who suffered the most. (Share with a Tweet)
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Disclaimer: This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.