SVB Banking Crisis, Fed Pivot, BTC ETH price action📈

This was the 2nd largest bank failure in the United States! Ryan and David discuss the breaking story around the SVB banking crisis. What happened? Why? What's the effect on crypto, the rest of the financial markets, and the banking system? ------ 📣 RhinoFi | Makes DeFi Frictionless https://bankless.cc/rhino ------ 🚀 JOIN BANKLESS PREMIUM: https://newsletter.banklesshq.com/subscribe ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://bankless.cc/kraken 🦄UNISWAP | ON-CHAIN MARKETPLACE https://bankless.cc/uniswap 👻 PHANTOM | #1 SOLANA WALLET https://bankless.cc/phantom-waitlist 🦊METAMASK LEARN | HELPFUL WEB3 RESOURCE https://bankless.cc/MetaMask 🚁 EARNIFI | CLAIM YOUR UNCLAIMED AIRDROPS https://bankless.cc/earnifi ----- Timestamps: 0:00 Intro 10:50 Recap https://twitter.com/biancoresearch/status/1634885127179325440 22:40 Balaji https://twitter.com/balajis/status/1634297491507273730 28:05 Joint Statement from FDIC, Fed, Treasury https://home.treasury.gov/news/press-releases/jy1337 32:40 Silvergate says it would have been fine https://twitter.com/tarunchitra/status/1635130119030468608 36:25 Bank Stocks Today https://twitter.com/krugermacro/status/1635272871563132928 37:10 Circuit Breaker Day https://twitter.com/EricBalchunas/status/1635277429932699650 38:14 XLF Banking sector: https://www.tradingview.com/chart/pabiN1CM/?symbol=AMEX%3AXLF 38:37 Two Tiers of Banks https://twitter.com/DavidSacks/status/1634991519735361536 39:25 Jake: “Will regulators get in the way of other banks providing services to crypto customers?" https://twitter.com/jchervinsky/status/1635062063583363072 Yano gives 6 options https://twitter.com/JasonYanowitz/status/1635092782665846784 42:40 Effect on USDC https://twitter.com/circle/status/1634391505988206592 DAI too https://imgur.com/r52CCX1 44:40 Chadallaire https://twitter.com/jerallaire/status/1635059024050937856?s=20 48:20 USDC:USD conversions are good to go https://twitter.com/coinbase/status/1635276541545566215?s=20 52:20 10 yr yield down https://twitter.com/Fxhedgers/status/1635283433684627457 52:50 Pricing in new interest rates https://twitter.com/tier10k/status/1635218135405195264 57:20 Meanwhile, crypto: https://twitter.com/Matt_Hougan/status/1635283436981358595 58:25 Kraken Crypto Prices: https://pro.kraken.com/app/trade/ETH-usd 59:45 Banks down, Bankless up https://twitter.com/DaRealMilkBagz/status/1635317764306112520 1:00:00 Binance buying 1 billy BTC https://twitter.com/cz_binance/status/1635131601884700674 1:01:07 NLW Meme https://twitter.com/nlw/status/1635283902339375106 1:03:29 Quintenz https://twitter.com/brianquintenz/status/1634173078828621825 1:04:00 Attack on Crypto? https://twitter.com/nic__carter/status/1635328056234766337 1:04:37 Don’t let them blame this on crypto https://twitter.com/RyanSAdams/status/1635058083071410176?s=20 https://twitter.com/TrustlessState/status/1635049623407726596?s=20 1:05:05 Memes https://twitter.com/ErikVoorhees/status/1635282975100407812?s=20 https://twitter.com/milesjennings/status/1635319531790045184?s=20 1:05:50 Closing & Disclaimers ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:14Ryan Sean Adams?

  Bankless Nation, we have a banking crisis that just happened over the weekend. David, the second largest bank in US history collapsed. Silicon Valley Bank, SVB, so people are calling it. We've been monitoring this all weekend. We wanted to give you guys an update. We do these special episodes every once in a while, usually when the world's on fire, something crazy is going on.

• 0:37David Hoffman?

  One of those times.

• 0:38Ryan Sean Adams?

  Yeah, we're just drinking from the fire hose and finding out more information as things go. So we may even have some updates in this live stream. But David, what are we going to cover today?

• 0:48David Hoffman?

  Yeah, so all of this news broke almost exactly when we stopped recording the weekly roll up on Thursday. So all the, and it seems to be that this episode, I mean, it's news is still breaking, but it's unless something big and new happens, it seems to be that all of this event, all the events have happened between Thursday evening and Sunday evening. And then the markets opened this, this Monday morning and the fallout of all of those events have now taken place. It could be that this whole entire story started and ended inside of the last three days. And so we weren't able to cover it on the Bankless Friday Weekly Roll Up, which is why we are doing this weekend roll up on Monday right now to cover what the hell just

• 1:33David Hoffman?

  happened in the world of, of finance and banking and the Fed and Treasury and FDIC, Silicon Valley Bank, Signature Bank, Silvergate Bank, the run on all of the banks, all of the mid to low tier banks and the flight towards the big banks. And is this overall an attack on crypto? I think is where this conversation will eventually end. Ryan, were you, I was doom scrolling this weekend. How were you doing?

• 2:00Ryan Sean Adams?

  Yeah, I was like, look, I was doom scrolling this weekend. My big question was, was US, USDC going to be okay?

• 2:06David Hoffman?

  Right.

• 2:06Ryan Sean Adams?

  Right? That was definitely a big question in my mind. And also another. Big question around Signature Bank, because that was that was kind of the the next. That's where USDC has a whole bunch of its its stores as well. And then a big question around Silicon Valley Bank, like, what was going to happen to depositor funds? Right? Because this is a story that is definitely in the banking sector and affects in a big way Silicon Valley tech companies. So a whole bunch of the crypto startups that we know were panicking over the weekend. Like, are we going to be able to make make payroll on Monday? And then there was this question of contagion. Is this going to spread beyond Silicon Valley Bank to the rest of the US banking system? Is crypto going to get, you know, wrapped up in this?

• 2:48Ryan Sean Adams?

  And of course, because by seven, the markets are trading in crypto and the stock market's closed. FDIC can come in and be like, oh, we're just stopping this bank. And we're going to sort it out over the weekend and we'll give you an update Monday. Well, crypto still trades. And so you saw USDC trading like 10 cents off the peg, dropping.

• 3:07David Hoffman?

  USDC got down to 88 cents.

• 3:10Ryan Sean Adams?

  Did it really?

• 3:11David Hoffman?

  88 cents.

• 3:12Ryan Sean Adams?

  Okay, so you're like, oh, meltdown, you're looking at die and you're like, what's going on? Is there something I don't know? My gut around this was that the Fed was going, the FDIC, rather, was going to come and

• 3:25Ryan Sean Adams?

  reserve depositor funds, like bail bailout is the wrong term, but like guarantee, I should say, guaranteed deposit.

• 3:32David Hoffman?

  Protect deposits, protect customers.

• 3:34Ryan Sean Adams?

  Yeah, because if they don't, the entire banking sector could risk contagion. And does anyone really want that? And the answer is no. So I sort of expected it would end the way that it hasn't. Maybe we're kind of rushing the conclusion of the story before we get to the the very beginning. But it ended in a much better place than the weekend started. And yet, David, I don't know that it's over. All right, we might just be in chapter one of a multi-phase book here of. So a question in my mind that I would love to to get answered is like, okay, what happened?

• 4:10Ryan Sean Adams?

  And then what does it mean going forward? But also, how did we get here? A bank run? Like the second largest bank run in US history? Like, how does that happen? So hopefully, I know you've done a lot of research on this. You put this entire agenda together. I'm kind of along for the ride. I'm going to be asking you questions, man, to try to get up to speed on this.

• 4:30David Hoffman?

  Yeah, I think you touched on the right questions. And really, just to reiterate them, the story opened up with, is USDC going to be OK? Some people thought that the base case for USDC as a result of this news was it goes to zero. That was the most extreme case. And we were all, as a crypto industry, sped run, learning about banking and finance. So the weekend opened up with, is USDC going to be OK? How much funds are lost because of the insolvency of Silvergate Bank? Why did this happen at all? What were the forces that created the run on the bank? So that is a question that we will ask and also attempt to answer in this show. The FDIC insures, of course, a quarter million deposits. But now it's insuring everything.

• 5:14David Hoffman?

  What does that mean for the banking sector? And how does that change the banking industry? And again, like I said, is this an attack on crypto? So a lot of these questions and more as well. I think we're going to tackle here in this episode. We have Ryan. And for all the listeners that were not glued to the screens this weekend, we found this, I found this a very short, awesome TikTok, which I think we will go ahead and play right now just to catch everyone up because it's a funny and actually really useful way to tell a story of what just happened. So Ryan, you ready to watch this TikTok video? Let's do it. Let's do it.

• 5:51Speaker 02

  Yep, that's me. You're probably wondering how I got here. The year is 2019, and I live like a king. Hey, SVB, looking good, Randall. Investors love me. Conditions are perfect. Hey, I just got $50 million in funding. Could I deposit in your bank? And companies are getting more funding than ever. What's your startup do? It's an app where you rate how hot people's daughters are without them asking.

• 6:15Speaker 02

  I went to Berkeley? Put it in. Oh, we're making some cash. Hey, let's put $80 million in mortgage-backed securities. Oh, that sounds a little 2008, don't you think? Nah, interest rates are down. We'll get a return of 1.5%. I like our odds. I really don't. Thank you. Yep, life was pretty great as the 20th largest bank in the US, and nothing was going to ruin that.

• 6:32Ryan Sean Adams?

  Surprise! It's 2022, and you will not believe the price of eggs out there. One second.

• 6:43Speaker 02

  Ah. Okay, people did not like Daughter Rank. That's funny, please. Uh, hey, let's sell some securities. Hey, what are you doing? Sir, almost none of our deposits are insured. If I tell you, you can't freak out. Okay. We are having a tiny liquidity crisis. A what? So we're just gonna do a little bit of capital raising. A liquidity crisis? Not a crisis. No, no, it's not bad.

• 7:07Speaker 02

  Hmm, my stock is down today. Why could that be?

• 7:14Ryan Sean Adams?

  Tomorrow, class, legs. That money was for payroll, motherfucker.

• 7:18Speaker 02

  Okay, I won't raise any capital. I won't raise any capital.

• 7:24Speaker 02

  Because we're exploring a sale.

• 7:31Speaker 02

  I should be fine.

• 7:34Speaker 02

  Ah, come on.

• 7:37David Hoffman?

  All right, and that's that. I thought that was pretty good. Uh, so we're gonna walk through each individual part of those, uh, of everything that was just mentioned there, uh, and all of the conversations around, uh, is the money printer back on? Uh, because I think a new form of QE has dropped. But first, before we get to all of these stories, we're gonna talk about some of these fantastic sponsors that make this show possible. Kraken has been a leader in the crypto industry for the last 12 years. Dedicated to accelerating the global adoption of crypto, Kraken puts an emphasis on security, transparency, and client support, which is why over 9 million clients have come to love Kraken's products. Whether you're a beginner or a pro, the Kraken UX is simple, intuitive, and frictionless, making the Kraken app a great place for all to get involved and learn about crypto.

• 8:21David Hoffman?

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• 9:06David Hoffman?

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• 9:51David Hoffman?

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• 10:34David Hoffman?

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• 10:51David Hoffman?

  Back, and in order to really tell this full story, we have to start at the beginning. We're going to ask the question, why did this happen? Why did Silicon Valley Bank experience a run on the bank? And why were other banks threatened with runs on their banks? Why did this over... Why are... The words banking crises being thrown around out there. And I think I found the the best, really, the simplest explanation of this, which was put together by our good friend, Jim Bianco. And so here's a very long tweet because he's doing the whole long tweet thing, but I pulled out the the basically the gist out of this. And the the things that I really want to emphasize here are twofold. One, this is different than 2008 in mainly two different ways.

• 11:33David Hoffman?

  One is because of just the banking sector is different and what is happening today is the Silicon Valley bank crisis is different than 2008. We'll talk about that. But first, I want to start with it's different because we have modern day technology. So the the punchline here is that bank runs on the bank can happen 100 times faster than they could have happened in 2008. And that is because of an ad just a growth in the virality of social media communications. Somebody can cause a run on the bank on Twitter these days because the information can spread that a bank might be insolvent. Super incredibly fast. Not only that, but also wire transfers, ACH transfers, just like time to settlement is overall much faster.

• 12:18David Hoffman?

  And so we are, what is it, 15 years later, after 2008, things go much faster these days. News spreads much faster, news spreads like wildfire, and the ability for mobile banking to allow for people to with submit requests to withdraw is almost instantaneous. You can line up in a virtual queue to withdraw all of your money out of a bank on social on your mobile device like that. And so that's one part of the story. And this is what Jim Bianco is saying is like, "Welcome to the world of mobile banking. Gone are the frictions of standing in line with tellers instructed to count money slowly. How did $42 billion get withdrawn Friday alone without thousands in line?

• 12:58David Hoffman?

  Your phone." And so Jim's message to the bankers and regulators worldwide is that this should be scary. The entire $17 trillion deposit base is a hair trigger away expecting instant liquidity. And he's saying, Banks will never be the same. So this is like the external force. We have external powers, external technologies allowing for bank runs to happen faster. But first, like, there has to be an actually underlying fundamental structure as to why there would be a run of the bank in the first place. And this goes back to the rising interest rates, the fastest rising interest rates that we have ever had in our lifetimes, probably ever. And so Silicon Valley Bank and many, many other banks were still paying half a percent on accounts when Treasury bills were yielding these banks 5%.

• 13:43David Hoffman?

  So banks are like taking in tons of profits. And so Jim Bianco says, initially, as rates passed 2, 3, 4%, the public did not notice. It's like, oh, I don't really care about the yield in my savings account. It's been at zero for forever. Never really like making the connection that as interest rates rise, they should actually be getting those yields. And so the bankers, Jim Bianco claims, thought that deposits were well anchored at their bank and not moving regardless of the interest rates paid. But at 5%, when yields finally, the public could get 5% yields on Treasury bills, people started to realize that they needed to move their money out of savings accounts and deposits that weren't getting them those yields and move them into funds that they could.

• 14:25David Hoffman?

  And so banks started to get squeezed, convert their loans and securities to cash instantly so depositors could leave for better rates. And the bleed out from tech firms started to make struggling happen. And this is where, in addition, we have, so we have those two impacts. We have the discrepancy of yield and people wanting to get more yield because Treasury rates are going up. Then you have people like Senator Warren, who starts tweeting out with glee, Jim Bianco says, about Silvergate going out of business and depositors at SVB, he says, gets the message, pickups their phones and starts lining up to withdraw the money out of Silicon Valley Bank. And so Jim Bianco finishes this and saying, "The FDIC needs to raise the deposit insurance ceiling to unlimited,

• 15:10David Hoffman?

  as they did in 2008, besides 250,000 is a made up number anyways." So he says, "Make up a bigger number." So this is Jim Bianco's autopsy of what happened, Ryan. And so I'll pause there and kind of get your reaction from that.

• 15:23Ryan Sean Adams?

  Yeah, I think, I think so. We're getting right into the why this happened, right? But can we go over the facts of like, what actually happened last week? Because to me, and probably for a lot of people who weren't like glued to their screens, this was sort of a whirlwind. So we had Silvergate Bank, which is a crypto-focused bank last week, that essentially, did they announce unwind insolvency?

• 15:50Ryan Sean Adams?

  You know, and that was kind of the first, I guess, domino to fall here. And I believe that this was a fairly orderly process in that equity shareholders were going to get wiped in Silvergate, but depositors would be made whole. And this was kind of announced, set in motion, I believe, was that early last week now, David? And this is, so this is number one, bank number one, Silvergate Bank. Now, what you're talking about here is Silicon Valley Bank. And they had, I guess we would describe as a sort of a run on the bank, where a whole bunch of depositors wanted to withdraw at the same time, and couldn't, and froze? I'm just like, I want to get the facts of what happened right first.

• 16:33Ryan Sean Adams?

  Is, um, yeah, what happened late last week?

• 16:37David Hoffman?

  Uh, is my video coming through? I think I'm thinking I'm frozen. It is?

• 16:41Ryan Sean Adams?

  It was frozen for a second, but now it's back.

• 16:43David Hoffman?

  Okay, cool. I don't see it on my end. So, so yeah, so people did a run on the bank. And so all people started to understand that Silicon Valley Bank did not have sufficient liquidity. And so it turns into a prisoner's dilemma. And so as soon as some people started to realize, they started to withdraw, which starts to compound the problem, right? A classic run on the bank.

• 17:06Ryan Sean Adams?

  But why was it just Silicon Valley? Why not the entire banking sector? Like, it wasn't like there was this whole global scare where all American citizens were like, "I gotta withdraw." Why was it specific to Silicon Valley?

• 17:17David Hoffman?

  Well, I think because a lot of these banks are doing this, the classic thing where they do, where they invest customer deposits into long-dated securities, long-dated treasuries, not completely, but some of it. And Silicon Valley Bank was the most egregious in having a mismatch between their short-term liquidity commitments to

• 17:37David Hoffman?

  And deposits and how much they were investing into long-term illiquid treasury bills.

• 17:41Ryan Sean Adams?

  And what depositors in the market just woke up and realized this? They were like, oh my God, rates are going up. There was Silvergate that had a banking crisis earlier this week. We better check on Silicon Valley Bank because we know they purchased a whole bunch of government bonds essentially that are now kind of underwater and have decreased in price. And so they might not have enough assets to cover liabilities. And if they don't have enough assets to cover liabilities, then depositors' funds are at stake. Withdraw your funds. Like this, this kind of communication is going on. Phone calls, Zoom calls, Telegram chats, social media chatter amplifies it, and that precipitates a run on Silicon Valley Bank as well. And all of this

• 18:26Ryan Sean Adams?

  happened, what, like Thursday and Friday toward the end of last week?

• 18:29David Hoffman?

  Yeah, that's correct. And I don't really think there's any one like silver bullet that caused this whole thing. I think really the messaging that I'm getting is that as interest rates increased, it would put more stress on the banking sector. And that's fine, but they did it too fast. Interest rates went way too fast. And eventually that this catches up, right? You remember when we had Jim Bianco on last time, he was like, yeah, they're gonna continue to raise rates until something breaks. Well, the combination, what Jim Bianco's saying is the combination of a mismanaged treasury, which Silicon Bank has alleged to have been like very egregiously mismanaging their, their balance sheet, right? Not enough liquidity,

• 19:11David Hoffman?

  two, two long investments into two long-term, long time horizon treasuries and mortgage-backed securities. And so as interest rates increase, more and more banks become under pressure, and the first banks begin to fall. And it just so appears that Silvergate, Silicon Valley Bank, and perhaps also Signature Bank are the ones that are furthest out on the risk spectrum. And so they have taken the first wave of hits when it comes to stress in the banking, banking sector. Does that make sense?

• 19:40Ryan Sean Adams?

  Yeah, I think it does. So I'm trying to understand, like, when we get into the, so that's what happened. There was a run on the bank. And then what, did they just freeze? They stopped depositors from being able to withdraw their funds. So there's an actual freeze on the bank. So if you got in early enough, you could actually withdraw your funds from Silicon Valley Bank and put it in another larger bank. Because I guess that's where everyone is fleeing. You go from the weaker bank to the stronger bank. But at some point in time, there was an actual freeze where Silicon Valley Bank said, no more withdrawals. We have to freeze. The FDIC has come in, the feds are here, and they are now trying to sort things out. And by the way, depositors, if you had millions of dollars in Silicon Valley Bank,

• 20:24Ryan Sean Adams?

  you have to wait till Monday for more news? This is sort of what happened on Friday, right?

• 20:28David Hoffman?

  Yeah, and apparently the FDIC was eyeing SVB prior to this. So they had live data and were monitoring the bank prior to the actual shuttering of the bank.

• 20:40Ryan Sean Adams?

  So they were ready. They were ready for this.

• 20:43David Hoffman?

  Yeah.

• 20:44Ryan Sean Adams?

  Okay, and then, whose fault is this? So, okay, so we mentioned a few people, right? So we've got a few different stakeholders here. We've got Powell and the Fed. They are raising rates very aggressively and very quickly. We've got Silicon Valley Bank, who has a balance sheet, and they are purchasing...

• 21:04David Hoffman?

  Long-dated securities.

• 21:05Ryan Sean Adams?

  They could purchase all sorts of things, but they have specifically chosen to purchase long-dated securities and some mortgage-backed securities. And then you have depositors, which are a whole bunch of Silicon Valley tech companies, but also some mom-and-pop businesses and some average, everyday Americans. But disproportionately, it was kind of like Silicon Valley VCs and startups and that sort of, those were the depositors here. So of those three parties, we've got like the Fed, we've got Silicon Valley executives and management, and we've got depositors. Whose fault is it that Silicon Valley Bank is in this situation?

• 21:43David Hoffman?

  I think a lot of people are pointing fingers right now. I think it is a collection of all of those things. Mismanagement by management of the bank, a lot of risky startup ventures, making risky startup venture bets inside of a 0% interest rate environment. And then you have Elizabeth Warren, who's going after the banking sector, causing fears to have to be had about Silvergate, which, you know, starts to permeate into like, what are the banks that are very proximate to Silvergate in terms of their client base? Well, that's Silicon Valley Bank and also Signature Bank. And so it's all of these things, right? And then it's the virality of social media and the fact

• 22:26David Hoffman?

  that depositors weren't getting sufficient yield on their deposits. And so they withdrew from Silver, from Silicon Valley Bank to go elsewhere. It's all of these things. And so, but I think that's why the claim that this was kind of inevitable. Balaji, I know, is really pointing the fingers at the powers that be, if you will. So he tweets out, "The Fed said till December 2021 that inflation was transitory. They let banks buy bonds with customer deposits, then suddenly hiked rates to decadal heights. The bonds they just sold got less valuable overnight. Anyone who trusted the Fed got wrecked, and now so do their customers." So some people are definitely just

• 23:07David Hoffman?

  pointing fingers and saying, "It's the Fed's fault. The fastest rate hike in history changed the paradigm of investing way too quickly for banks to be able to respond." And so rather than it being a slow transition from one paradigm to another, it was too fast. It was too fast.

• 23:24Ryan Sean Adams?

  What, whose fault do you think it is? I agree, there's some shared blame here. And there was the fourth, that fourth category that you mentioned of like politicians just causing bank runs because they're chasing clout, which is just crazy that that can happen these days. But that seems to be the case. But I guess if I'm assessing those four different groups of who's at fault, I feel like The Fed has got to bear the weight of this responsibility. Like maybe 40 to 60%, right? Decreasing rates to zero, increasing them so fast, money printer, easy money era, all of these things, even allowing like tech companies, low cost of capital and sort

• 24:07Ryan Sean Adams?

  of bubble style of venture capital pricing and funding, right? So they've got a disproportionate view. You could also, of course, blame any clout chasing politicians that were pushing a bank run. You also have to blame Silicon Valley Bank, don't you? Their management. They didn't have to purchase long dated securities in this way. I mean, they knew, they should have known the risks going in, given the climate and given what, of course, the Fed is going to need to raise rates. If they were managing risk and other banks aren't in the situation, if they were managing risks appropriately, they would have had a different portfolio of assets kind of backing their entire bank. So you have to, wait, a lot of the blame there. Maybe that's another 40%. Maybe it's 50 or 60.

• 24:51Ryan Sean Adams?

  I could be persuaded. But depositors, did they like, what's your, because I know there's been a lot of debate about depositors, right? It's like, some people are like, hey, uh, these Silicon Valley tech bros, you know, they're just rich fat cats and hang them out to dry. Don't, a lot of people, at least on the political side of Twitter, were saying that FDIC shouldn't go above $250,000 per account and actually rescue some of the depositors. What blame do you think depositors have?

• 25:22David Hoffman?

  The word bailout has been invoked recently, right?

• 25:24Ryan Sean Adams?

  Right.

• 25:24David Hoffman?

  And I think people have, since we are 15 years away from 2008, this, we've lost what the word bailout really means. And so this was a big line in the sand that was drawn that people were picking a side on. It's like, as a depositor, as a customer of a bank. Do you, does the word bailout mean something to you? Or are you just a client who needs to get your money back? And I don't think in 2008, the word bailout ever meant about, that was always directed towards the management and shareholders. In 2008, shareholders of banks got bailouts. In this, in what's happening today with SVV and, and Silvergate and the other banks, all equity holders are going to zero. They are not getting bailed out.

• 26:07David Hoffman?

  Customer deposits, the only thing that really seems to be changing here is that the FTIC insurance number of a quarter million dollars is being temporarily expanded to infinity. As in, if you are a customer, you are not bearing any risk whatsoever of the bank. And this is because the banking sector is, at this point, a public institution. It is a public-private agreement between the Fed and the Treasury and all the commercial banks that are out there. And so if you are a customer of a bank inside of the United States, you effectively, meaningfully are a customer of a public institution. And so if one bank fails, that doesn't mean you, the customer, lose your money for taking risks. No one really thinks themselves as taking risk when they deposit their money in a bank.

• 26:51David Hoffman?

  That, and other people were like, oh, uh, I don't, like, other people on crypto Twitter that I was seeing, perhaps like the, the anti-capitalist left to cast a wide net over these people, say like, oh, these are all just like millionaire billionaire startup people. Like if they get wiped out, it doesn't really matter. It started to get politicized, but that conversation didn't really go forward anywhere. Uh, I think people came to consensus that the word bailout specifically means for the management and shareholders of a bank. And these people are getting zero. They are getting nothing. They are getting wiped out while all customers are being made 100% whole.

• 27:28Ryan Sean Adams?

  Yeah, and I, look, I think that there's also some recognition that Silicon Valley Bank, if you don't stop it here, and you just dismiss that as, oh, those are, those are the tech bro depositors. We don't care about them, right? Well, next up is going to be your, your bank, like down the road. Maybe it's the funds that you keep in, in Wells Fargo or Bank of America or something else like the contagion would spread and that was the real concern of the weekend. I feel like we're maybe front running a little bit of this because what happened was the bank run on Friday. Right. And then eventually, what was it announced late yesterday? The Biden administration announced that they would make sure, make all depositors in Silicon Valley Bank whole. Do we want to share that side of the story?

• 28:13David Hoffman?

  Yeah. So a joint statement came out really at the final hour, Sunday evening, I believe at 6:30 PM Eastern time. It could not have been any later because markets.

• 28:22Ryan Sean Adams?

  It could have been on Monday morning, right? I guess.

• 28:24David Hoffman?

  So if it was still on Monday morning, Asian markets were going to open and, and that was going to start to create, you know, the contagion, right? So, you know, finance is a global event, right? And so Asian markets need to, needed to be quelled before they opened up. And so at the, basically at the final hour, they were, the idea here is that the Treasury FDIC was looking for a buyer to step in to buy Silvergate Bank, but that would have.

• 28:52Ryan Sean Adams?

  You mean Silicon Valley Bank, not Silvergate, right?

• 28:54David Hoffman?

  S V B, yes. S V B Bank, yes. A buyer did not show up in time. I'm sure the assets under Silicon Valley Bank are great, but the idea here is that they were waiting for a buyer to step in. Didn't happen fast enough. And so at the final hour, they issued this joint statement from the Department of Treasury, the Federal Reserve and the FDIC. So I'll read out a select few paragraphs here.

• 29:16David Hoffman?

  "After receiving a recommendation from the boards of the FDIC and the Federal Reserve and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank in a manner that fully protects all depositors. Depositors will have access to all of their money, starting Monday, March 13th. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer." Put a pin in that one because we're going to come back to that one.

• 29:42Ryan Sean Adams?

  Yeah. How is that possible?

• 29:43David Hoffman?

  Yeah. How is that possible? So the, the punchline here is babe, wake up, a new form of QE just dropped. We'll cover that. We are also announcing a similar systemic risk exception for Signature Bank.

• 29:58David Hoffman?

  That is also extremely something that we need to pull in here. Let me go find that actually that section here. Signature Bank. No one knew that we were worried about Signature Bank. It was Silicon Valley Bank that we're worried about. And so in this press release, they also say, "Hey, not only have we seized and paused and taken control over Silicon Valley Bank, we are also doing it for Signature Bank." Signature Bank is the other main big crypto banking, crypto banker after Silvergate Bank.

• 30:27Ryan Sean Adams?

  It's actually like, remember, we found this out last week.

• 30:29David Hoffman?

  Ten times bigger.

• 30:30Ryan Sean Adams?

  It's 10 times bigger.

• 30:31David Hoffman?

  10 times bigger. And so Signature Bank was closed by its state chartering authority. All depositors of this institution will also be made whole. And with the resolution of Silicon Valley Bank, also no losses will be borne by the taxpayer. So two banks are getting seized by the FDIC, all depositors being made whole, equity shareholders getting wiped out. They follow up and say shareholders and certain unsecured debtors will not be protected. Senior management has also been removed. So this is the, there is no bailout line. There's no bailout like in 2008. Any losses to the deposit, any losses to the deposit insurance fund to support uninsured depositors will be recovered by a special assessment on the bank. So that's really the punchline here. All creditors, all depositors into these banks are totally

• 31:16David Hoffman?

  fine. All equity shareholders and risk takers are totally wiped out.

• 31:21Ryan Sean Adams?

  So Treasury stepping in and saying, "Okay, we are not going to let this contagion continue. We're not going to leave it in question whether deposits get protected or not, or guaranteed or not. We're just going to guarantee all depositors of Silicon Valley Bank so that contagion doesn't spread." Right? So stepping in, and that's probably a good idea, right? They're also saying, though, maybe this is part of what you wanted to put a pin in, that it won't cost the taxpayers anything.

• 31:49David Hoffman?

  How does that happen?

• 31:50Ryan Sean Adams?

  Yeah.

• 31:51David Hoffman?

  Right. Okay. So the banks didn't solve it. There's no money in the bank. The run on the bank happened. There are securities and treasuries that are worth certain amounts. And so it's also worth saying that like, the value of what is on the balance sheet of these banks are strong. They just can't. There's time to maturity, right? They have to wait for those things to actually discover their value.

• 32:13Ryan Sean Adams?

  They may be underwater, but they're not underwater like, you know, lunaterra underwater. Like it's not going to zero.

• 32:19David Hoffman?

  Where there's nothing there. Like, most of the stuff is there. It's just like this time to maturity thing is the issue. And so there's, there is a lot of, but regardless, depositors need to withdraw immediately. And so this is where this new form of QE is coming from, which we'll talk about later in the show.

• 32:39David Hoffman?

  And so this is Tarun Chitra, who tweeted out, I think this is from a Bloomberg terminal, saying, this is a member of the Signature Bank saying that, I think if we had been allowed to open tomorrow, that we could have continued. We have a solid loan book. We're the biggest lender in New York City under the low income housing credit, said former Congressman Barney Frank, a Signature Bank board member known for the Dodd-Frank Act, which overhauled US financial regulation in the wake of the global financial crisis. I think the bank could have been a going concern. So a member of Signature Bank said that, we probably were good, but they seized us anyways. So this is part of where this, is this an attack on crypto question comes in? So that's the first question that we're posing again. Was this a legitimate anti-contagion effort?

• 33:24David Hoffman?

  Probably. Was it also an attack on crypto? And also, since the $250,000 federal deposit insurance number is being completely neglected. What's the real number? Is the real number just infinity now? Like they're all, all deposits are now completely insured across all banks at all times? Cause that's kind of the precedent being set here.

• 33:46Ryan Sean Adams?

  I think the answer to all those questions seems to be like, yes.

• 33:49David Hoffman?

  Yeah.

• 33:50Ryan Sean Adams?

  This is what it seems. They were stopping the contagion, right? FDIC limit of 250K. That's the letter of the law. It's not actually what's going to happen. If there is bank contagion, the threat of bank contagion, then any deposit that you have in a US bank account is good. It's solid. You're good. They're going to ensure that up to the whatever amount, infinity amount, whatever amount they need to be. And then also, yes, David, I'm concerned that this is an attack on crypto. If, and I'm wondering, and I'm worried about this. This hasn't been the case yet that we've seen, but there was the Biden tweet last night. I don't know if you read that, where he said, we're going to find those, hold those accountable.

• 34:30David Hoffman?

  This one.

• 34:30Ryan Sean Adams?

  Yes. I'm firmly committed to holding those responsible for this mess fully accountable and continuing our efforts to strengthen oversight. Who is accountable for this mess in Biden's mind, in the, in Treasury's mind, in the Fed's mind? Do you think that they're going to like investigate inside the house? Like the calls coming from inside the house? Are they going to like go to Powell and be like, hey, you caused this? Maybe a little bit, but all the, are they also going to look for external actors to kind of smear? And who will those actors be? The fact that they are preemptively closing Signature Bank is not a good sign for crypto. Because if you believe, who is that? Was that Barney Frank on the board?

• 35:14David Hoffman?

  Yes.

• 35:14Ryan Sean Adams?

  That you just read? If you believe him, he was saying, hey, Signature was fine. We were going to weather this storm. Not a big deal. And they are being targeted? For what reason? I mean, Signature Bank is essentially a crypto bank here.

• 35:28David Hoffman?

  Yeah. Yeah. And Nick Carter is responding to this Biden tweet saying, I'll crack the case for you, Congress and your own administration for causing the inflation that made the Fed hike 500 bits and plunge all banks into insolvency is what is responsible for all this. So the idea that the Biden administration is going to go hold those accountable, when it was like Elizabeth Warren stoking fears, that was one part of this. The Federal Reserve raising interest rates super fast, that was another part of this. Like. It's part of this whole entire apparatus and the own administration is here to blame. Not that like a different administration would have done anything different,

• 36:06David Hoffman?

  but like raising interest rates way too fast and then Elizabeth Warren being very scary about the crypto banking sector has a lot to do with it, right?

• 36:15Ryan Sean Adams?

  Yeah, but what I'm saying, David, is too, is I think that they are prepping to throw crypto. They could be prepping to throw crypto under the bus here.

• 36:23David Hoffman?

  Sure. Oh, I think, I think the headlines, if you read mainstream media are all ready to say, the bet on crypto is what felled Silvergate and Silicon Valley and Signature. But okay, but right now, Ryan, banks in this morning of trading started popping circuit breakers left and right. So the, there's a not.

• 36:45Ryan Sean Adams?

  What is that? What is this down 74%? My God.

• 36:48David Hoffman?

  So look at this. So here at the top, we have JP Morgan down 1.5%, right?

• 36:52Ryan Sean Adams?

  Yeah.

• 36:53David Hoffman?

  Goldman Sachs down 1.9%. See, I think a Citigroup down 3.5%. Those are all the big ones, right?

• 37:00Ryan Sean Adams?

  The big ones are fine because they're too big to fail, aren't they?

• 37:04David Hoffman?

  And then there's other ones are down 5%, 9%, 8%, 65%, 75%, 26%. So what's happening here is there is like a flight. Here's all the circuit breakers that just got halted on the New York Stock Exchange, all in the banking sector. And so First Republic Bank is the one that's down like 75% and other US regional national banks are their equity values. The share, share prices are just getting hit brutally.

• 37:32Ryan Sean Adams?

  Well, that's because shareholders are getting wiped right now, aren't they?

• 37:34David Hoffman?

  Bank shareholders. So not, not on all of them, but people are now realizing that equity.

• 37:39Ryan Sean Adams?

  It could be.

• 37:40David Hoffman?

  They could be if there is indeed a run on the banks because there's no bailouts coming for these regional banks. And so small to middle tier banks are getting absolutely pummeled right now because everyone realizes that FDIC deposit insurance is.

• 37:55Ryan Sean Adams?

  Infinity.

• 37:56David Hoffman?

  Is infinity. And so like it, all of the, the value of risk taking and the equity shares of these banks is like, why would you take that risk? And so, I mean, stock prices of again, middle sized or small sized regional banks are down.

• 38:12David Hoffman?

  Whereas the big banks are kind of totally fine. Here is XLF, which is the sector for the banking sector, the banking financial sector. And so as you can see, this is, this is, here it is on Tuesday.

• 38:24Ryan Sean Adams?

  It's quite the candle.

• 38:25David Hoffman?

  And here it is now, we are down, the banking sector as a whole is down 12%, which I mean, in crypto is kind of.

• 38:30Ryan Sean Adams?

  But I mean, this could be good news for the big banks, right?

• 38:32David Hoffman?

  For the big banks, well, because it's consolidation, right?

• 38:34Ryan Sean Adams?

  Yeah, there's a fight to safety, there's consolidation here.

• 38:37David Hoffman?

  So here's a David Sacks takes from the All In Podcast. The Fed may or may not realize it, but it has created a two-tier banking system. Tier one, systemically important banks, these are the two big to fail banks. If you have money there, it's a true deposit, you can't lose it. Tier two, everyone else. If you have money there, it's not a true deposit, it's an unsecured loan to the bank, you could lose it in a bank failure. And so I think this is what people are worried about is what the.

• 39:02Ryan Sean Adams?

  Well, he put that tweet out, it looks like he put that tweet out before the FDIC came and kind of bailed out all depositors.

• 39:11David Hoffman?

  This is true.

• 39:11Ryan Sean Adams?

  But I do think it carries that like, the tier two is everyone else whose shareholders could get completely wiped.

• 39:18David Hoffman?

  Right, shareholders are not, are taking, are all the risk here.

• 39:23Ryan Sean Adams?

  All the risk, they're bearing all the risk, depositors are bearing none of it, it seems like.

• 39:26David Hoffman?

  Yeah, and so here's a tweet from Jake Schervinsky, which I think is actually like the great point to focus on as it relates to crypto banking. Jake says, "The closures of Silvergate, Silicon Valley Bank and Signature create a huge gap in the market for crypto-friendly banking. There may be banks that can seize this opportunity without taking on the same risks as these. The question is if banking regulators will try and stand in their way." So now that these crypto banks are gone.

• 39:50Ryan Sean Adams?

  And Signature is gone, right, David?

• 39:52David Hoffman?

  Signature is gone, it is gone.

• 39:54Ryan Sean Adams?

  Like, so, so, and this just happened, this was news as of yesterday, so we didn't know this on Friday, that along with SVB, that Treasury and FDIC was stepping in to Signature and wiping out shareholders again, but protecting deposer funds. We don't know why they did that, but like, that is, this is the crypto banking sector.

• 40:16David Hoffman?

  Right.

• 40:16Ryan Sean Adams?

  These three banks.

• 40:17David Hoffman?

  Yeah, so, so Yanow from Blockwork says, "With Silvergate and Signature gone, here are some crypto-friendly alternative banks. BCB, Cross River, Customers Bank, Joel Mercury series, not perfect solutions, but should get the job done."

• 40:29Ryan Sean Adams?

  For how long though?

• 40:30David Hoffman?

  Is this how the cards fall? Yeah, and for how long, like, is Liz Warren done? Or is she coming after these next? You know?

• 40:39Ryan Sean Adams?

  Well, yeah, I, I think that's the question of where this contagion could spread. Wow. So lots happened. Do you feel like this is contained right now? I know we're going to talk about USDC, but as far as the, the banking sector itself in the US, are we contained or is, you know, are we, what can we expect moving forward? What have you kind of heard and pieced together?

• 41:04David Hoffman?

  Well, I think with this announcement that happened Sunday night, that was the containment, right? It was a complete and unquestioned, unconditional protection of all deposits of anywhere in any bank account ever, at least in this, you know, acute crisis that we are having. So no one that, no one who has money in a bank should be scared. And now that bank run fears are probably completely over because why would you fear it? Because they're just saying they're, they're pulling out an infinite insurance fund for any deposits. The net effect of this is showing up in banking equities, right? Instead, instead of people losing money, like all of these small to mid-tier regional banks are taking the losses. That's why all these things are red. So depositors completely in the green,

• 41:48David Hoffman?

  or at least not, you know, zero, which is fine. That's what they expected. All of that risk and all of that loss is being, is being transferred from depositors over to equity holders of these small to middle-tier regional banks. And then the big banks were like, oh, we don't care. We're totally fine. Is a contagion done? I, yeah, right. That's the whole point of the whole FDIC statement. The contagion's over. Now it's just, there's a complete reshuffling of what it means to be a bank inside of the United States.

• 42:15Ryan Sean Adams?

  The contagion's over for the depositors, it seems like, but we don't know how bank shareholders will fare or the banks themselves will fare, but the market is interpreting this as good news if you are too big to fail bank.

• 42:27David Hoffman?

  Yes. Yeah. Well, at least, yeah. So like they're being dragged down just by association. But if you're a bank and you're only down 1.5% today, you're, you're, you're doing just fine.

• 42:36Ryan Sean Adams?

  Wow. Well, what else we got coming up, David?

• 42:39David Hoffman?

  We're coming up. We're going to talk about USDC. Actually, we'll, we'll bang out some USDC stuff right now. So what was at risk was 3.3 billion of the 40 billion of total USDC reserves were at Silicon Valley Bank. And so this is when stable coins started to suffer, lost their peg, right? So I took this screenshot this morning. Have you ever seen? Stablecoin charts like this in the bottom right here.

• 43:04Ryan Sean Adams?

  The closest was, the closest was like three years ago this time when DIVE was trading, it wasn't USDC.

• 43:10David Hoffman?

  Right.

• 43:11Ryan Sean Adams?

  But DIVE was trading off of its peg and it went down to like 92 cents or 93 cents.

• 43:16David Hoffman?

  Yeah, but even that was slow. It was a slow peg, a slow rise. Right. And this is USDC.

• 43:22Ryan Sean Adams?

  USDC.

• 43:23David Hoffman?

  Which has always been perfectly redeemable for a dollar, fell all the way down to like 98 cents.

• 43:28Ryan Sean Adams?

  And it was trading out of, trading down out of a scare that basically its deposits in Silicon Valley Bank wouldn't be redeemable. And so, you know, the issued USDC was unbacked for a period of time. Is that why it was trading down?

• 43:45David Hoffman?

  Yeah. Yeah. So it got as low as 88 cents, which I think is irrationally low, but it got, it got there anyways. And so this was, this was really what was at stake and this is why crypto markets sold off. It sold off because USDC was under threat. DIVE is basically one-to-one pegged to USDC. And so those two big stablecoins went down to 90 cents or so. And then also Silicon Valley Bank is the bank for many, many startups. You and I, we started getting messages from our angel investment saying, hey, Joseph Rye, we're totally fine. We didn't bank at Silicon Valley Bank. That was best case scenario. Others would be like, oh yeah, we totally bank at Silicon Valley Bank. We're kind of, we're praying, basically.

• 44:29David Hoffman?

  So that's what this last weekend was for like so many startups. And so these are, these are all crypto bullish and crypto adjacent people. And so, and so, but it really directly impacted the crypto markets through USDC. Jeremy A. Layer put out this tweet yesterday at 7:20 PM, about one hour after the news that the FDIC was going to come and provide infinity insurance. And he just, he just says, 100% of USDC reserves are safe and secure and we will complete our transfer of remaining SVB cash to BNY Mellon. So all of Circle's deposits that back USDC are going from Silicon Valley to their other bank, BNY Mellon. With the closure, bigger bank, yep. With the closure of Signature Bank, we will not be able to process minting and redemption through Signet

• 45:12David Hoffman?

  and we'll be relying on settlements through BNY Mellon. Additionally, we are bringing on a new transaction banking partner. We'll automated minting and redemption potentially as soon as tomorrow, if that's today. And we are committed to building a robust and automated USDC settlement and reserve operations with the highest quality and transparency. So USDC getting completely off, completely solvent, just picking new banks now.

• 45:33Ryan Sean Adams?

  Were you ever worried about USDC like this weekend? How worried were you?

• 45:37David Hoffman?

  I think the worst, the worst case scenario that I envisioned was that their deposits go to zero and all USDC just takes a haircut. So like one USDC becomes worth like 93 cents or something like that. I think that was the worst case scenario. Other people were like dooming about it's going to zero and that never really made any sense to me. What about you?

• 45:55Ryan Sean Adams?

  Yeah, I agree. That never made sense to me. And but even like the it only being worth 90 cents didn't make sense to me unless, unless the Fed decided to not guarantee deposits at Silicon Valley Bank and, and also not just that, that wouldn't have been enough and also go and target crypto or go and or the crypto banking sector like Signature, for example, was also underwater in the same way that Silicon Valley Bank was. So it felt like there were even a lot of steps necessary to make USDC only worth like 90 cents potentially. I do feel like the market responded irrationally about that. And I, I thought all weekend I

• 46:39Ryan Sean Adams?

  was kind of a little, I was more relaxed about this because it seemed obvious to me that Treasury would have to step in and stop this contagion at the source. You, you just can't have a bank run on a top 20 bank in the US in this, in this climate where you have interest rates, you know, above 5% and you have a lot, a lot of other banks that are looking at Silicon Valley Bank and being like, oh God. And then to the, the fact that, that you mentioned Jim, Jim tweeting earlier was like, Now we're in a web two banking essentially, so you can just deposit on a dime. That's what everyone was preparing to do on Monday morning.

• 47:15David Hoffman?

  Yeah, yeah, that's right. And I think if you do this math, 3.3 billion of the total 40 billion of USCC reserves were under threat at SVB. So that is 8.25 cents on the dollar for one USCC. So if that went to zero, you would have a 92 and a half cents or 91 and a half cents USCC. But again, remember, remember SVB, it's not like they didn't have nothing there. Like they were had plenty of total.

• 47:40Ryan Sean Adams?

  They had like 90% of the 100% or something like this.

• 47:43David Hoffman?

  And so like the idea of USDC losing even, you know, close to 10 cents was never gonna

• 47:50Ryan Sean Adams?

  David, crypto is just jittery, man. They're like, oh, does like crypto learned a lot about.

• 47:54David Hoffman?

  Super reactionary, yeah.

• 47:55Ryan Sean Adams?

  Crypto learned a lot about banking, I think, last week. That, I mean, we just live in 2022. We lived through a stable coin called, uh, you know, USDT, the lunaterra ecosystem that dropped to zero, right? We saw FTX, which was like a crypto bank that had nothing backing its deposits. And so I think people in crypto sort of extrapolated that to the US banking system. We're like, oh, USDC could drop to zero.

• 48:22David Hoffman?

  Yeah. And now USDC to USC conversions are completely up online and operational. Uh, and this is Coinbase tweeting this out. Uh, so USCC crisis inside of two and a half days, completely fine. And I wouldn't even call it a crisis in the first place. Okay, so coming up next, we got to talk about the markets because crypto is up big. Uh, and also we have to unpack, uh, we've got 10 year, the 10 year treasury falling down below the 200 day moving average, down to three and a half percent. We'll talk about how that's actually kind of a solution to the problem that created it in the first place. Uh, we'll talk about, uh, is this an attack on crypto? And what are people saying all about that? And really the punchline here is that is this the pivot? Is this the pivot moment?

• 49:05David Hoffman?

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• 50:33David Hoffman?

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• 51:15David Hoffman?

  But that's just one of many things that a Premium subscription gets you. There's also the Token Report, a monthly bullish, bearish, neutral report on the hottest tokens of the month. And the regular updates from the Token Report go into the Token Bible, your first-stop shop for every token worth investigating in crypto. Bankless Premium also gets you a 30% discount to the Permissionless Conference, which means it basically just pays for itself. There's also the Airdrop Guide to make sure you don't miss a drop in 2023. But really, the best part about Bankless Premium is hanging out with me, Ryan, and the rest of the Bankless team in the Inner Circle Discord, only for Premium members. Want the alpha? Check out Ben the Analyst's DGEN pit, where you can ask him questions about the Token Report. Got a question? I've got my own Q&A room for any questions that you might have.

• 52:00David Hoffman?

  At Bankless, we have huge things planned for 2023, including a new website with login with your Ethereum address capabilities, and we're super excited to ship what we are calling Bankless 2.0 soon TM. So, if you want extra help exploring the frontier, subscribe to Bankless Premium. It's under 50 cents a day and provides a wealth of knowledge and support on your journey west. I'll see you in the Discord. We are back, and as of this morning, the 10-year yield has fallen below 3.5%. 3.5%. And so, yields are coming down, which is, actually ironically, a huge solution to what is causing this bank run in the first place, this banking crisis, is that yields got too hot.

• 52:43David Hoffman?

  And these treasuries and asset-backed securities that all of these banks bought, because interest rates went up, the value of these things went down. So, yields are going down to 3.5%. The Fed Fund Futures is now showing a 60% odds, 60% chance of 0 bips increase in the next, in raising the interest rates. So now, there's a 60, the market is pricing a 60% chance that we do not increase yields.

• 53:13Ryan Sean Adams?

  That's up, that's up from 35%, it looks like, in the last, you know, 12 hours or so.

• 53:20David Hoffman?

  Right. And so Ryan, the market is saying the Fed is done. Something broke. So many people, all the macro people that we've had on over the last year have said the Fed is going to raise interest rates until something breaks.

• 53:33Ryan Sean Adams?

  Something broke.

• 53:34David Hoffman?

  I think something broke.

• 53:35Ryan Sean Adams?

  Yeah, you can't, you can't just keep raising interest rates until you have bank runs across the country, right? So this is, has to affect their policy moving forward.

• 53:44David Hoffman?

  Yes, that's exactly right. And so people are now, and this is, I think, part of the story of why crypto is absolutely ripping today. Ether is almost at 1700. Bitcoin is at almost $25,000, 2,000, 24,350. And so the market is starting to price in a Fed pivot. Not only that, but we have a new form of QE. And so this is Caitlin Long, who's saying the big four US banks just got a $210 billion Fed bailout. How? Fed's new bank insurance program, this is the new insurance program that they came up with to help ensure the depositors.

• 54:21David Hoffman?

  That new facility is allowing banks to borrow against the negative collateral value shown on this graph at par instead of the actual market value. So that time to maturity, banks are allowed to borrow against their assets at the time of maturity, not the time, not the value that they currently are.

• 54:40Ryan Sean Adams?

  That just happened yesterday.

• 54:42David Hoffman?

  That just happened yesterday.

• 54:42Ryan Sean Adams?

  I want everyone to know this. So part of that press release wasn't just that depositors at Silicon Valley Bank and Signature would be safe. And so are all depositors in the US system, but they also kind of like snuck this in.

• 54:56David Hoffman?

  Right.

• 54:57Ryan Sean Adams?

  Which is, which is basically that these securities would be valued, not at their market value.

• 55:05David Hoffman?

  Not what they can be sold for on the secondary market.

• 55:07Ryan Sean Adams?

  But at their par value, right?

• 55:08David Hoffman?

  Nominal value.

• 55:09Ryan Sean Adams?

  That's as, that's as if you bought a house for, say, a hundred thousand dollars or something. And the market dropped, it's now worth $60,000. But for whatever reason, the US banking system decided to say, whatever, the market price isn't right, $60,000.

• 55:25David Hoffman?

  Right.

• 55:25Ryan Sean Adams?

  We'll, we'll give you a loan based on, a home equity loan based on the hundred thousand dollars. That's what they're doing.

• 55:30David Hoffman?

  The hundred thousand dollars plus all of the rental income you could be getting over the next 10 years.

• 55:35Ryan Sean Adams?

  Right. That, that's what the par value is essentially. And so that is a huge QE measure to the entire US banking system. I haven't fully wrapped my head around what this, what this means, but that was kind of snuck in there and they're doing this so that. Another Silicon Valley bank doesn't pop up.

• 55:53David Hoffman?

  Right, exactly. They're doing this because people need liquidity. And so they are offering liquidity to the highly capitalized banks in a way that allows, basically, this is a form of QE. This is a sneaky form of printing money that isn't actually the money printer. So this is why I led this section, this tweet with like, babe, wake up, a new form of QE just dropped. They love new forms of QE, money printing that doesn't actually appear like money printing. This is taking equity values of assets that don't exist and allowing people to borrow against them. It is a new form of money creation.

• 56:27Ryan Sean Adams?

  It's basically so that all the other Silicon Valley bank situations where they purchased too many long dated securities, right? And now they're kind of underwater. It's so that that doesn't happen again.

• 56:37David Hoffman?

  That's right.

• 56:37Ryan Sean Adams?

  Because Silicon Valley Bank could just like rinse, wash, repeat for every weakened bank in the US who did this kind of maneuver. And there are probably many of them. And so this kind of, but it is, how are they going to pay for this? Money supply is essentially it.

• 56:53David Hoffman?

  Yes. Okay, so we have treasury yields coming down, which means risk taking can go up. Right? We have the Fed funds futures now showing 60% odds of not increasing. Right after the Fed said like, hey, we're totally going to increase, by the way, but and not even a little bit by a lot. Remember that was last week. The Fed last week said, oh yeah, we're going to increase by more than 25 bps. Today, the market is pricing in 60% odds they're not doing anything. We have this new form of QE coming. So what does crypto do? What's crypto do, Ryan? Bitcoin is up 12%, Ether is up 9%, BNB is up 8%, crypto is green across the board. And this is one of the first times, Ryan, that I've actually seen crypto price action

• 57:38David Hoffman?

  be related to the actual point of crypto in the first place, which is self custodied bearer asset instruments.

• 57:46David Hoffman?

  Crypto is being priced by its fundamentals. It's so good to see.

• 57:51Ryan Sean Adams?

  Yeah, I mean, not only did we just say that USDC is is safe, which is obviously good for crypto. If that had not have been safe, not only would have been terrible for the US banking system, would have been terrible for USDC, and I think crypto would have gotten hit on top of that. We also have seen that the Fed pivot is in full motion. And then we've also seen this is the thing that crypto is built to prevent is bank runs, contagion. This is what ETH and Bitcoin do very well. Where DeFi, you can see kind of all of the assets that that back that that back any kind of lending or borrowing asset on chain, you can see all that you have full transparency. You can't get these types of bank runs in crypto.

• 58:35Ryan Sean Adams?

  So the use case has just been proved out even even more.

• 58:38David Hoffman?

  So Ryan, here is where we finished the weekly roll up last Thursday. There's the candle that happened right after we recorded the weekly roll up. Ether went down as low as 17%, down 17% since we recorded last Thursday. But it's actually ending the week, ending the weekend, excuse me, up 2.5%.

• 58:59Ryan Sean Adams?

  Wow.

• 58:59David Hoffman?

  Ether. Here's Bitcoin. Bitcoin is actually up even better. So Bitcoin is doing the same thing. Bitcoin is up about 4% since we recorded last Thursday. Here's the USDC price. Look at that. That is nuts. That is absolutely crazy.

• 59:15Ryan Sean Adams?

  Zoom out, zoom out.

• 59:17David Hoffman?

  What do you mean zoom out?

• 59:18Ryan Sean Adams?

  Just keep zooming out. I want to see. It's like, look at this. That's a silly chart.

• 59:22David Hoffman?

  It's very, very silly. So USDC gets as low as, man, as low as 88 cents, and now it's back up. It's actually over a dollar. Oh, no, it's not. 0.999 cents for one USDC.

• 59:38Ryan Sean Adams?

  Wow.

• 59:39David Hoffman?

  Joe Weisenthal tweets up Bitcoin is up about 10% last 24 hours. One of the cleanest divergences versus other risk assets that I can recall. And I just love this one, man. Look Bitcoin up 9% Ether up 6% Charles Schwab Bank down 9% East West Bancorp down 60% Financial Corp down 18% Banks down crypto assets up. You love to see it. Not only this, though.

• 1:00:03Ryan Sean Adams?

  Uncorrelated.

• 1:00:04David Hoffman?

  CZ has said that he is going to convert the 1 billion industry recovery initiative funds from BUSD into Bitcoin and BNB and ETH. And so CZ's market dumping BUSD for crypto assets.

• 1:00:21Ryan Sean Adams?

  Well, this is great. Do you remember that there were, okay, so another byproduct of this that we'll be talking about, I'm sure in the weeks to come is there was a threat at one point in time that centralized stablecoins like USDC would essentially eat the money use case of crypto. So why do you need Bitcoin? Why do you need ETH if you have a stablecoin on chain, right? All the monetary premium will kind of leak into you. Stablecoin assets. This is showing why that can't be the case and why that won't be the case and why Bitcoin and Ether and crypto native assets that aren't dependent on any external banking system, why they will always be core monetary units of crypto. And this is providing more strength to them and less strength to the the stablecoin use case.

• 1:01:07David Hoffman?

  Are you ready for a meme?

• 1:01:08Ryan Sean Adams?

  Yeah.

• 1:01:10David Hoffman?

  Corporate needs to find the differences between this picture and this picture. One picture on the left is all of the banking stock circuit breakers popping off because they are down bad. And then Bitcoin absolutely mooning. And apparently, according to NLW, these are the same pictures.

• 1:01:26David Hoffman?

  I just love it when bankless assets moon while banks get hammered. Not that this is, I'm not happy about that in the banking sector. This is a fault of so many other things, but this is the net effect of that.

• 1:01:38Ryan Sean Adams?

  Right.

• 1:01:38David Hoffman?

  And so Ryan, I think this brings us to the last part of this conversation, which was, was this an attack on crypto?

• 1:01:45Ryan Sean Adams?

  Was what? We should have, we should define with, is, are you talking about the signature bank portion of this? Or like the Silvergate portion of this? Or what portion of this? Because it's not all an attack on crypto. I almost feel like it's in the cap, cap of like camp of an opportunistic attack on crypto, if you will.

• 1:02:04David Hoffman?

  I think that's right. I think that's right, but I it's worth pointing out that January and February were marked by Operation Choke Point, right? They were coming to de-bank crypto. And then fast forward to March, the crypto banks are taken, are seized by the FDIC. Like, it was an opportunity to attack, but attack nonetheless. So that's really how this 2023 started, and now we're 13 days into March, and our three biggest crypto banks got seized. So like, what's the net effect of that? Like crypto banks are crypto is now being de-banked.

• 1:02:35Ryan Sean Adams?

  It's being de-banked in the US, right? Which slows down the fiat inflows crypto, in which is a bad thing in the short run. But I wonder if it's not a good thing in the long run, David. I mean, there are elements of have we become too dependent on the US banking system? This really shows the strength of Ethereum and Bitcoin. Like, they can de-bank US citizens for a period of time, but you can't de-bank crypto. Crypto is the bank. The capital will find a way to leak back into crypto, like it always does, and crypto will continue to grow and grow and grow. Over the long run, you really can't de-bank crypto. And I don't think that those trying to, I guess, choke off crypto in the US fully understand this.

• 1:03:18David Hoffman?

  Yeah, I think that's right. But I think also, at the same time, we're going to be hearing this narrative. Like, we already are seeing the headlines of bank fails because of crypto. Bank fails because of crypto. Those headlines are left and right. And so Brian Quintan Quintens tweeted out, so the Federal Reserve hikes hikes rates by 400 basis points in 12 months. That's 4%, sending all asset prices into a tailspin inverts the yield curve the most since 1980, causing large regional banks like Key Corp to raise alarm bells on funding costs. And crypto is a problem? And so he's saying like, why crypto should not be the problem? This is this is a result of all of these endogenous factors that have nothing to do with crypto, right?

• 1:03:59David Hoffman?

  Here's Nick Carter saying, Dear God, Barney Frank openly admits that signature was arbitrarily shuttered, despite no insolvency because regulators wanted to kill off the last major pro crypto bank, Colossus Scandal. This is linked in a CNBC article. This is linked in a CNBC article. Let me see if I can find this.

• 1:04:26David Hoffman?

  I think part of what happened was that regulators wanted to send a very strong anti crypto message, which is why Silvergate was taken down. They're just saying that the quiet part out loud in public fashions, right? And so this is your tweet from this last weekend. Silvergate, SVB Signature Bank, these are banks. Banks had to be shuttered, not crypto. And so the narrative here is that they're going to try and blame crypto. And we have to remind them that it was actually banks that failed, not crypto that failed.

• 1:04:54Ryan Sean Adams?

  I'd be happy to. This is where the battle for hearts and minds come in, because I think there's going to be a narrative battle in the coming weeks and months between those that want to blame crypto for this and we who want to show that crypto was the thing that was standing at the end of this. It was the banking system that has failed, not crypto. But I think we're, I think this is going to be a narrative battle for hearts and minds and a fight for mainstream, like the mainstream narrative. What does the average American citizen actually believe at the end of this?

• 1:05:28David Hoffman?

  Yeah. Here's Miles Jennings, who's the legal counsel at A16C, the Fed shooting the absolute hell out of the US banking system and then turns to the camera and asks, why would crypto do this?

• 1:05:41Ryan Sean Adams?

  That's such a good meme, man. That's a great meme. I love that. Well, that's where we are right now, David. Is anything else you want to say in summary in closing?

• 1:05:49David Hoffman?

  That's all I got, man. That's all I got.

• 1:05:51Ryan Sean Adams?

  What a weekend, guys. We hope this helped get you up to speed. David, what are we doing tomorrow? We're bringing, David and I are not banking financial system experts. We know a thing or two and we can piece a story together and we know how it intersects with crypto, but we are bringing on someone who does tomorrow for State of the Nation. Who's coming on tomorrow, David? And what are we talking about?

• 1:06:09David Hoffman?

  Yeah, we are bringing on, apologies in advance, Ram for butchering your last name, Ram Aluwalia, who is a capital markets, banking sector expert, at least far more than we are, who also very much understands the crypto world as well. And the agenda that I made for that show, right, is already obsolete. So I'm going to have to make another one tonight. But as the events continue to unfold for the rest of the day today, the market doesn't close for another 20 more minutes or an hour, 20 more minutes. I don't know. Trad markets. But all of the, all the things that happened today are, and all of the news of, that's going to be projected out the next following months or so, we're going to talk about that all throughout the State of the Nation tomorrow.

• 1:06:50Ryan Sean Adams?

  There we go. The contagion seems to be stopped for now. USDC is fine. Crypto held up during the

• 1:06:55David Hoffman?

  What a weekend.

• 1:06:56Ryan Sean Adams?

  As it always does. It was a crazy weekend. A lot of uncertainty for a lot of folks. Seems to be mainly resolved, but I can't help but ask myself, ask the question of, is this all over? Have we seen the last of the crypto, of the, of the banking contagion, I should say? We'll see. It does seem like a Fed pivots on the way, but will that be enough? Or will we see some other cracks form before the end of all this? We'll have to see.

• 1:07:20David Hoffman?

  Yeah. I think the last thing I'll just say is like, yo, if you are the crypto class of 2021 and 2022, man, you guys have earned your stripes. You guys have experienced a lot.

• 1:07:30Ryan Sean Adams?

  Yeah.

• 1:07:31David Hoffman?

  For your first run.

• 1:07:32Ryan Sean Adams?

  Yeah. I, there, there was a time where I thought, oh, you never, you'll never match class of 2018, 2019 and the hell that we lived through, but like, I don't know.

• 1:07:41David Hoffman?

  No.

• 1:07:42Ryan Sean Adams?

  This, this is pretty.

• 1:07:44David Hoffman?

  This is a bad one.

• 1:07:45Ryan Sean Adams?

  This is pretty bad. And you're seeing it all. And hopefully getting a crash course on how our money system works as a result, which is only a good thing moving forward. David, you're doing, you're getting off of this in the next 15 minutes and you are doing a Twitter Spaces for the Brian Armstrong Bankless Collectible, right? What's coming up there?

• 1:08:03David Hoffman?

  That's exactly right. Yeah. So we are always Monday Mints, the podcast NFT that goes with every Monday podcast. That space is starting in 17 minutes. Are you gonna, are you gonna be there?

• 1:08:12Ryan Sean Adams?

  I don't think I can make it. I gotta go do something else. Go talk to somebody about something else.

• 1:08:17David Hoffman?

  Oh, that's right.

• 1:08:17Ryan Sean Adams?

  Not to be obscure, but.

• 1:08:19David Hoffman?

  Uh, we just had a killer episode with Brian Armstrong. So if you guys are completely done with all of this banking and contagion talk and want to talk about some crypto things and all of the cool things that Coinbase is doing, that Twitter space is starting in 17 minutes.

• 1:08:31Ryan Sean Adams?

  Yes. And it's your opportunity to mint and collect the Brian Armstrong NFT podcast. Guys, we'll end it this way with risks and disclaimers. We usually say crypto is risky. I don't think that fits this episode. The US banking system is risky. All right. Banks are risky. You could lose what you put in. Hopefully it's FDIC insured, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.