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Bad news for Celsius Earn Program (cryptos) customers. Bankruptcy judge cites fine print in his ruling that customer assets under the Program belonged to Celsius, not customers. This will put a new focus on brokerage TOS (terms of service) in cryptos and elsewhere as this is the domain of contract law.
SI ( down 48% today ) and COIN both crashed today as it turns out SI was unloading assets at fire sale prices to raise cash to pay withdrawals, that I would think was to avoid going bankrupt. WSJ reports that SI unloaded massive amount of debt it owned, loosing over $700 million ( far more than total profits since 2013)
If this can happen to an FDIC insured bank, imagine what is in store for all other Crypto exchanges etc.
Makes AOL and PETS.COM look like Widows and Orphans choices
I assume that a fair number of people deposited their Bitcoin at SI assuming they would easily turn it into cash when they wanted to. The cash would be FDIC insured, but when everyone ran for the door at the same time their Bitcoin was worth a lot less.
The real question for SI is why does anyone need a crypto only bank, especially one whose business model depends on high volume of crypto trading etc.
Why would anyone assume that nations’ governments—and notably, the U.S. government, which has the world reserve currency—would let themselves be disintermediated by an artificial unregulated unaffiliated currency used often for crime and tax evasion? A currency I should add whose creator remains anonymous and requires massive amounts of energy to produce. One could also add that if crypto succeeds in fulfilling every libertarian’s zero government winner-take-all fantasies, America’s economy fails. Our status of having the world reserve currency has been hugely advantageous.
Probably for the same reason someone would believe that the US should default on it's debt, eliminate Social Security and Medicare, require five year reenactment of all federal legislation and firing and re-hiring of all federal employees etc ec.
Yet Senior GOP Senators have proposed exactly that.
Silvergate/SI has tapped FHLBanks for billions in advances/loans. The FHLB $s are ahead of EVERYBODY, even the FDIC. This is getting curiouser and curiouser.
There is news that Silvergate/SI delayed filing reports with the SEC and raised going-concern issues. It seems that it had to suddenly pay back the large FHLB loan (why it got that loan in the first place was my question then; didn't seem like housing related). It is below $10 in the after-markets this evening. Some are speculating on Twitter if it would survive this weekend. https://twitter.com/YBB_Finance/status/1631081040277012480
I seem to recall you mentioning this potential scenario in the past several weeks...
Do you care to prognosticate what the potential knock on effects could be...I think you mentioned there would be a potential negative impact outside the crypto space
Silvergate/SI is an FDIC insured bank. It runs an interface SEN (exchange) that connects its clients with the crypto world - it claims to be only a middleman. It is one of the handful of banks still providing some banking services to the crypto world. Last year, it had to tap the FHLB for a large liquidity loan when it had a bank-run - surprising because the FHLB mission is to support housing (not cryptos) - I wasn't the only one making this observation. Many banks in such situation tap the Fed Discount Window but the Fed is more strict. It seems that as Silvergate financial situation worsened, the FHLB called its loan and that is one of the reasons causing its current difficulties.
Silvergate failure will cause some ripples in banking and cryptos (that were already in an ice-age).
The US Government right now is choking the cryptos of "oxygen" via regulations and stricter banking oversight.
Bloomberg's John Authers had a very good discussion of SI yesterday. It is behind a paywall, but the bottom line as I sorta understand it is that in addition to this FHLB loan, the bank had large portfolio of Bonds a lot of which were on the books at purchase prices, not current value. As interest rates have shot up bonds are worth a lot less. Now they are having to sell them to pay off loan and fund redemptions for customers.
So a lot of the issue seems to have little to do with Crypto itself.
there are a lot of people and aggressive investors who saw this as a "safe" way to invest in Crypto
That’s interesting. One of the Fed “open-mouth committee” members seemed to hint at a rate hike pause yesterday (for later this year). Strange talk I thought based on past Fed rhetoric. Was scratching my head trying to figure out what possible scent in the wind might have gotten their attention? Banks possibly? Elsewhere, I read today that one recent problems facing crypto banks is the high rate of interest now available to mom & pop investors thru T-Bills, money market funds, etc. so that people are somewhat less inclined to play around with crypto. I don’t mean to cry “wolf” here or anything like that. Just find all this a bit interesting.
BTW -The VIX fell over 5% today and at 18.49 sits just above its 12-month low. And it’s down nearly 50% over the past 12-months. From that, can we conclude there’s not a lot of fear in the markets?
Thanks ,@Mark - Some pundits like the VIX and talk it up for whatever reason. I find it intriguing. Bloomberg TV often airs the current reading along with other market data. You can invest in it indirectly thru a (tortured) fund (TAIL). Below - Price appears to largely dismiss it:
”While the empirical evidence shows there have been times when a low level of the VIX has underestimated forward realized volatility and U.S. bonds have outperformed U.S. equities, the number of occurrences has been relatively low. As a result, without a meaningful and prolonged catalyst, such as increased geopolitical concerns, unexpected global central bank policy changes, or negative economic data, we believe there is a low historical likelihood that the current level of the VIX implies investor complacency and/or an immediate risk-off event.”
VIX is a way to assess the short-term volatility of SP500. It is imperfect because its current and real-time measurements differ from the historically realized volatilities. VIX cannot be traded directly, but only through VIX futures. There are several futures-based VIX ETFs. There are also "VIX" for other markets. https://etfdb.com/index/sp-500-vix-short-term-futures-tr/
The past year has led me to hold a very small ongoing position in SPDN, currently 2% of total invested assets. Enough to modify downside volatility on bad days. Definitely an experiment. The thinking is that it may be allowing slightly more aggressive positioning in some of the long positions. I’d never recommend it to others. But if others have any funds or techniques they employ as hedges I’d be interested in hearing.
About a year ago, I bought a little TAIL. Played with it for perhaps 6 weeks before discarding the idea. That’s not to say I wouldn’t use it again at some future point. BTW - My above post originally misstated TAIL’s 1- year performance. While it employs the VIX in its methodology, it hasn’t fared nearly as badly, off only 21% for 1 year.
Comments
CME Group CEO Terry Duffy avoided 'biblical' disaster with SBF, calling him a 'fraud'.
https://www.axios.com/2023/01/04/celsius-bankruptcy-earn-accounts
https://techcrunch.com/2023/01/04/bankruptcy-judge-rules-celsius-network-owns-users-interest-bearing-crypto-accounts/
If this can happen to an FDIC insured bank, imagine what is in store for all other Crypto exchanges etc.
Makes AOL and PETS.COM look like Widows and Orphans choices
Sometimes Fidelity surprises me for not staying out of trouble.
The real question for SI is why does anyone need a crypto only bank, especially one whose business model depends on high volume of crypto trading etc.
https://wolfstreet.com/2023/01/05/crypto-bank-silvergate-details-its-own-implosion-much-of-its-equity-capital-wiped-out-im-waiting-for-the-fdic-to-show-up/
Probably for the same reason someone would believe that the US should default on it's debt, eliminate Social Security and Medicare, require five year reenactment of all federal legislation and firing and re-hiring of all federal employees etc ec.
Yet Senior GOP Senators have proposed exactly that.
Corporate campaign financing is hugely problematic in general.
https://www.marketwatch.com/story/silvergate-capital-got-4-3-bln-loan-from-feds-amid-run-on-deposits-report-11673459671
https://www.americanbanker.com/news/silvergate-bank-loaded-up-on-4-3-billion-in-fhlb-advances
What is FHLB? https://ybbpersonalfinance.proboards.com/thread/386/fhfa-fhlbanks
https://www.coindesk.com/business/2023/01/20/genesis-global-files-for-bankruptcy-protection/
https://www.cnbc.com/2023/01/20/crypto-lender-genesis-trading-files-for-bankruptcy-barry-silbert-digital-currency-group.html
There is news that Silvergate/SI delayed filing reports with the SEC and raised going-concern issues. It seems that it had to suddenly pay back the large FHLB loan (why it got that loan in the first place was my question then; didn't seem like housing related). It is below $10 in the after-markets this evening. Some are speculating on Twitter if it would survive this weekend.
https://twitter.com/YBB_Finance/status/1631081040277012480
I seem to recall you mentioning this potential scenario in the past several weeks...
Do you care to prognosticate what the potential knock on effects could be...I think you mentioned there would be a potential negative impact outside the crypto space
Best regards
Baseball fan
Silvergate failure will cause some ripples in banking and cryptos (that were already in an ice-age).
The US Government right now is choking the cryptos of "oxygen" via regulations and stricter banking oversight.
So a lot of the issue seems to have little to do with Crypto itself.
there are a lot of people and aggressive investors who saw this as a "safe" way to invest in Crypto
That’s interesting. One of the Fed “open-mouth committee” members seemed to hint at a rate hike pause yesterday (for later this year). Strange talk I thought based on past Fed rhetoric. Was scratching my head trying to figure out what possible scent in the wind might have gotten their attention? Banks possibly? Elsewhere, I read today that one recent problems facing crypto banks is the high rate of interest now available to mom & pop investors thru T-Bills, money market funds, etc. so that people are somewhat less inclined to play around with crypto. I don’t mean to cry “wolf” here or anything like that. Just find all this a bit interesting.
BTW -The VIX fell over 5% today and at 18.49 sits just above its 12-month low. And it’s down nearly 50% over the past 12-months. From that, can we conclude there’s not a lot of fear in the markets?
What Does a Low VIX Tell US
”While the empirical evidence shows there have been times when a low level of the VIX has underestimated forward realized volatility and U.S. bonds have outperformed U.S. equities, the number of occurrences has been relatively low. As a result, without a meaningful and prolonged catalyst, such as increased geopolitical concerns, unexpected global central bank policy changes, or negative economic data, we believe there is a low historical likelihood that the current level of the VIX implies investor complacency and/or an immediate risk-off event.”
https://etfdb.com/index/sp-500-vix-short-term-futures-tr/
About a year ago, I bought a little TAIL. Played with it for perhaps 6 weeks before discarding the idea. That’s not to say I wouldn’t use it again at some future point. BTW - My above post originally misstated TAIL’s 1- year performance. While it employs the VIX in its methodology, it hasn’t fared nearly as badly, off only 21% for 1 year.
https://finance.yahoo.com/news/silvergate-capital-will-liquidate-after-crypto-collapse-wipes-out-bank-220356639.html