Crypto Blood: Silvergate, Binance, and Mt. Gox
Posted March 03, 2023
“I was born and raised in Brazil,” one speaker said. “And back in the 1990s the government overnight froze all of our savings. Imagine waking up and literally not being able to use your own money that’s in the bank.”
It’s one of many similar stories I’ve heard in passing at ETHDenver this week.
Since 2016, I’ve gone to crypto conferences and meetups all around the world. Brazil. Bangkok. Prague. Vietnam. DC. San Francisco. Lithuania. And more.
One thing I’ve noticed…
The less stable the speaker’s home currency and government, the more excited he or she is about the most basic use-cases of crypto. And the closer they are to home, the more it resonates.
Things like self-custody, transparency, permissionlessness… things that make most Americans shrug… are, for obvious reasons, seen as more immediately valuable in places where the value of the local fiat currency has a history of going kaput.
As another speaker, this one from Africa, said: “In America, you focus more on what you desire in crypto. In Africa, we focus on what we need.”
While cryptoland is talking about the future of crypto…
Crypto itself is back in fear mode.
As soon as I landed here in Denver, Bitcoin fell 5%. And as goes BTC, so goes crypto. Everything else fell with it.
Seems there are a few reasons for this:
1. Crypto bank Silvergate looks to be in trouble.
It started when they were late in filing their 10-K, citing “ongoing concerns.” The stock just dropped 57% and Coinbase, Circle, Paxos, Galaxy, and more have dropped them as banking partners. (They’re also down 65% since BlackRock announced their latest investment in them. Ouch.)
2. Mt Gox is about to unlock $3.3 billion in Bitcoin as soon as March 10.
The infamous Mt. Gox debacle from nearly a decade ago is finally getting some closure -- and the exchange is returning money back to depositors.
Recall, most of these people bought Bitcoin well below $500 per Bitcoin. If someone bought 100 BTC for $50,000… it’s now worth $2.2 million.
That’s probably why most of it is going to come in a fiat payout. Because of this, the exchange would need to sell Bitcoin. There are worries that this will cause massive selling pressure on BTC and cause it to crash further.
3. FTX just confirmed $8.9 billion in missing funds.
Most people aren’t shocked by this, and you shouldn’t be either.
4. Forbes wrote an article about Binance, stating that the crypto exchange used customer deposits for its own undisclosed purposes.
Binance reportedly transferred $1.8 billion in collateral to hedge funds, according to Forbes. Time will tell if this story holds weight.
5. WSJ published a negative article on Tether, outlining that the stablecoin company falsified documents and used shell companies to open bank accounts.
Again, Tether and Binance have received a ton of bad press lately. The market mostly shrugs. Time will tell.
Banks take risks. Crypto is risky.
There aren’t a lot of banks in the cryptosphere… so the few that do serve the big industry players bear the brunt of the entire industry’s risk.
That said, it’s becoming clear that Silvergate took on too much risk.
We have no crystal ball. We have no idea what will happen next.
But, here’s the thing that most mainstream pundits will gloss over:
Once again, this underscores the importance of crypto’s most basic principles -- transparency, openness, self-custody -- which are all-too easy to dismiss in traditional finance. (Until the next blow-up, then everyone asks, ‘How could this happen!?’)
In the meantime, we’re focusing on the real-world use-cases for crypto and DeFi… and embracing any dips as opportunities.