BTC+25%, ETH+20%. Taking Profit (Patreon)

We saw a huge run in BTC (+25%) and ETH (+20%) in the past few days as market experienced a flight to safety. At these levels, I'll be looking to capture and enjoy the profit. 

By this point, everyone knows what happened with SVB. If you don't, watch my YouTube video here and my follow on Patreon update here.

The outcome was not that surprising to those of us who lived through 2008. Just the thought of the FED letting a bank fail and depositors taking losses is unimaginable and would shake the core confidence of the entire banking system. 

Impact on Crypto/USD 

It happens that SVB is one of the banks that Circle (the issuer of USDC) uses to deposit their reserves. USDC being the most trusted stablecoin in crypto markets. The exact amount of money that Circle have deposited at SVB is USD3.3bn, out of a USD43bn reserve which is split into USD11bn in cash at banks and the remaining USD30 odd bn sitting in Tbills .

In most circumstances, that’s a bullet proof balance sheet. The assets here directly backs all USDC in circulation at a 1:1 ratio. However, once the USD3.3bn that’s deposited at SVB were in doubt, then USDC was no longer backed 1:1. The market started to give USDC a haircut as a result, which makes sense. 

But what was illogical was how much discount the market applied. If we assume that all 3.3bn is gone, then that’s a 7.6% loss, which means that at MAX loss USDC should be worth 92 cents. But USDC went as low as 88 cents over the weekend, which shows how irrational people became. 

Also lets not forget that all previous bank crisis precedents show that recovery on assets is always around 90%, so the total loss on the USD3.3bn should be around 300-400mn which is easily covered by the USD1.5bn of risk-free interest income generated by USDC’s $30bn of T-bills. The market was completely irrational, but luckily it did not last long. As soon as BPTP was announced, USDC started to rise and by Monday morning the peg was completely restored.

Disclaimer: The content of this post is solely for entertainment and not investment advice. Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions