Unchained - Jim Bianco on Why the Banking System Has Always Been Broken - Ep. 469

Episode Date: March 17, 2023

Jim Bianco, president and macro strategist at Bianco Research, explains what’s causing the recent cascade of bank failures. Yield seekers taking their money elsewhere are putting banks under strain. However, the Signature Bank takeover by New York regulators is “a little fishy,” Bianco says. He adds that DeFi has been holding up strong, providing an “alternative to this unstable system that we have right now.” Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Stitcher, Castbox, Google Podcasts, TuneIn, Amazon Music, or on your favorite podcast platform. Show highlights: why Jim thinks this is a liquidity crisis, not a solvency crisis the role of crypto and tech startups in the recent bank run  how people have been pulling out of crypto in the past 18 months why the traditional fractional reserve system for banks is broken why crypto projects like Aave and Compound are solutions why Jim says the Fed is a “legal counterfeiter” why money moving around so fast is a challenge to our antiquated financial system  whether Signet, Signature Bank’s digital payments platform, is the real reason why regulators shut the bank down whether the Fed will succeed or fail with FedNow, its instant payment system Thank you to our sponsors! Crypto.com Railgun DAO  Guest Jim Bianco, President and founder of Bianco Research Links Unchained: The Fall of SVB: What Happened and How It Affects Crypto Was Signature Bank Actually Insolvent? Circle to Bring On New Banking Partner for USDC Minting, Redemption Regulators Close Signature Bank Following SVB Collapse Silvergate to Wind Down Operations in ‘Voluntary Liquidation’ CNBC: Long-awaited Fed digital payment system to launch in July Ram Ahluwalia’s tweet on the Fed Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone. Welcome to Unchained. You're no hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto seven years ago and as a senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full-time. This is the March 17th, 2023 episode of Unchained. Ever wanted to use Defi without being tracked? Railgun is a leading defy privacy solution on Ethereum, BSC, Arbitrum, and Polygon. your funds and use them privately in your favorite defy apps, while Railgun's cutting edge zero knowledge system encrypts your data from public view. Yes, that includes dextrating. Visitrail.org or use the Railway app at Railway.xy-Z. With the Crypto.com app, you can buy, earn, and spend crypto in one place. Download and get $25 with the code, Laura, link in the description. Today's guest is Jim Bianco, founder and president of Bianco Research. Welcome, Jim. Hey, thanks for having, you, Laura. We've seen three bank closures in quick succession.

It seems each of them had different causes. But since you're a macro expert, I wanted to ask you about one of the causes that has been much discussed, which is the current high interest rate environment. Do you think that that played a role? And if so, what was that role? No, I think it played the primary role in what's been happening. I'm going to use a fancy term, and then I'm going to try and define it. This is a liquidity crisis, not a solvency crisis.

Now, what does that mean? This is nothing like 2008. In 2008, banks made loans and they bought securities. Then they lost a ton of money on them. And they were unable to meet their obligations because of losses. In 2023, banks made loans and they owned securities, which were largely good. There was no real problem with securities. I know people are trying to make a big deal about this unrealized loss, but that's not a real problem. What happened was everybody wanted their money back on the same day. And a bank can't turn to a loan in a mortgage and a bunch of securities and sell them all in the next four minutes and raise cash in order to meet those obligations. This is what causes these banks to fail. If you want a better explanation of this, go watch the bank run and it's a wonderful life. This is exactly what happened in the 1930s. So this is from 80 years ago what's going on in the markets. This is not from 15 years ago.

It's a liquidity problem. It's not a solvency problem. Now that I've defined it, the problem was interest rates in both directions, both zero interest rates for 14 years, I think was the bigger problem in raising of interest rates. What happened with banks coming into a year ago was they had enough deposits. They didn't need any more deposits. So when the Fed started raising rates, you might have noticed, I have noticed, that your bank never raised your rate. Your savings account, your checking account are still somewhere near zero under interest rate. A lot of people think that that's because they're supposed to be there. No, they're supposed to follow the market.

Your checking account should be giving you 4% on your money. Your savings account should be giving you 4% on your money. It's not. And that's because the banks didn't need to attract any more money. So as interest rates went from zero to 1 to 2 to 3 to 4, nobody really did anything about it. And if 5% the world changed, people, logged on to their bank yet. They started to understand that there's a treasury bill. And I can buy a treasury bill through Treasury Direct through my brokerage account. And hey, guess what?

It's really easy to do. There's money market funds that are yielding four and a half percent. So they started demanding their money back from the bank and they started putting it outside of banks in treasury bills and in money market funds. And this all started at all banks, but it really hit on the weakest banks, the three S's, you know, Silvergate, Silicon Valley Bank and signature, because they also were getting outflows because of crypto or because of tech. And all of that combined together to put them in positions where they couldn't meet their obligations and they were forced to close. So hopefully that's a explanation that this is not about bankers making bad loans.

This is about everybody wants their money back in the same minute and they can't provide debt money in the same minute. And when you say that both crypto and tech started, these tech and crypto's customers were withdrawing their deposits, why was that? Because crypto and tech are, well, you know, I know that every tech, I know crypto people are DGens and they think that crypto's in a bull market because it's gone up for a week, but it's been terrible for 18 months. And tech has been terrible for 18 months too. They've been about the weakest areas in the entire economy right now. Tech can't raise any money. I know the VCs will tell you that they're raising money. Yeah, two guys are raising money and 500 can't. That crypto has been getting liquidated

left and right. We've had protocols blow up. We've had FTX. And people have been afraid of it and they've been pulling out. So Silvergate, signature, and even to some extent, Silicon Valley, have had outflows because of the problems in tech and the problems in crypto. They knew that, they were managing that. What tripped them up was they were losing deposits and they were managing the decline. I believe what tripped them up was the yield seekers weren't paying attention to rising yields through two, three, four percent. They thought that money was stable, wasn't going to go anywhere. At five, the floodgates opened and everybody started leaving and like, wait a minute, wait a minute, over here, the yield seekers are leaving now and my tech guys are

leaving and my crypto guys are leaving and they all want their money today at noon, I couldn't meet those applications. And that's why I think that they were forced. What I'm describing is why all this led to, say, Silicon Valley Bank a week ago Wednesday, had to sell $40 billion worth of securities and realize a $1.8 billion loss. And then their stock fell 60%. And then there was a panic, and then everybody started to run for the exits. And so on the bank side, they were making certain investments, which they were doing, obviously, to try to make a return on the customer's deposits. And as you pointed out, that kind of only works when interest rates are at a certain level. So do you think that the

traditional business model for banks is broken? The traditional business model, the fractional reserve system for banks. Let me be clear on it. It's been broken since it was invented in Venice and the Renaissance. It's been broken for 400 years. It is the ultimate levered system that is highly unstable. It has always been that way. We have had nothing but bank instability for hundreds of years. Now, what we try to do to offset that is we have deposit insurance, we have central banks, we have myriad of bank regulators that crisscross in this unstable system to try and force it to be stable. And even then, it doesn't always work. And then the taxpayer has to wind up bailing out the bank system over and over again. So yes, the fractional reserve banking system has always been

broken. It's just been a level of brokenness that it has been over the last half a millennia or something. We've had bank runs in the 17th century. And in the 18th century, we had wildcat banking problems. We had bank runs, terrible ones in the 1930s. We had the 2008 financial crisis and lots in between the savings of the loan crisis. This happens over and over again. The banking system is never sound. The banking system is always unstable. The banking system is either in one of two states. It is blowing up or it is about to blow up. But other than that, I have no opinion about the banking system. Well, do you think that there is a sustainable business model for banks that would be different from what we currently have? A fully reserved banking system model would be a much more

sustainable business model. That is the University of Chicago plan from the 1930s that they tried to do after the bank runs in 1930s, they tried to do away with the reserve banking system by promoting a fully reserved banking system. Now, since we're talking on a crypto channel, if you want an example of a fully reserved banking system, that's Aveen compound. And so that's exactly what they do. They don't lever. They take in the money. They reinvest the money. And there's a little bit of spread in between for their trouble. So, yeah, the sustainable system is what decentralized finance is attempting to give us right now. That's why I think that, you know, you've seen such hostility by regulators for the current defy system and stable coins is because it is the alternative to this unstable

system that we have right now. Well, I find it fascinating that you're pointing to those as the models that should be followed, but I love it. Can I be clear about one thing? Avay and compound, I think, are good models. Now, that doesn't preclude that they could be on other L-1s. That doesn't preclude that you could have it on the Bitcoin blockchain as well. But that is essentially the model, is a fully reserved model. And that's what their model is. They're not fractional reserved. I mean, the closest you've got to fractional reserves might be fracts, but then they're trying to go fully reserved as well. So that is the model that is very stable. But of course, that is also the model that makes bankers not have private planes in expensive cars because it just, it survives as a

utility, a bank, but it doesn't become a place where you can get very, very wealthy as a banker. But as an investor or lender or a borrower, you can rest assured that you're not going to accidentally lose all your money because your banker made a mistake. All right. So in a moment, we're going to talk about certain other factors that affected these bank closures. But first a quick word from the sponsors who make the show possible. Ever wanted to use defy without being tracked? Railgun is the leading defy privacy solution on Ethereum. It's available on BSC, Arbitrum, and Polygon 2. Shield your funds and use them privately in your favorite defy apps, while Railgun's cutting edge zero knowledge system encrypts your data from public view, all without leaving your preferred to. chain. Yes, that includes Dex Trading. Coming soon

are integrations with leading yield, lending, and perp trading platforms on multiple chains. Defy and privacy, together at last. Visit realgun.org or use the railway app at railway.xy to find out more. With the RBC Avion Visa,

you can book any airline, any flight, any time. So start taking off your travel list. Grand Canyon? Grand. Grand. Great Barrier Reef? Great. Galapagos? Galapagos. Switch and get up to 55,000 Avion points that never expire. Your idea of never missing out happens here. Conditions apply. Visit rbc.com slash avion. Back to my conversation with Jim. So I am definitely not a macro person, but I have seen a number of commentators point out that, quote, the net worth of the U.S. Federal Reserve is in the negative by over a trillion.

And people have been saying the Fed is losing money for the first time since 1915. I saw that in a tweet by Ram Alamalia. And others are saying the only way for the Fed to back off the system is to print more money. So like I said, I'm not a macro person. That doesn't sound good to me. And so I was curious for your thoughts on where the macro environment is going and what the Fed will do with interest rates and how that will affect the banks. I think you described it well.

I mean, it doesn't sound good to anybody listening to it because, you and me and everybody else listening to it, unless Jay Powell's plugged in here, don't have a printing press in the basement. So we don't get to just print up money whenever we make losses to cover it. And we also don't have the ability to write down in a piece of paper, I owe the Treasury $5 billion and hand it to Janet Yellen. She says, very good. When you get the money, you can pay me back, no hurries. And that's what, that is the special privilege that the Federal Reserve has. So are they running at a loss? Yes. Should I be? concerned about the financial stability because they're running it on loss? They're not particularly. It's just poor management on the part of the Federal Reserve. I'd be more concerned that by printing money, that they're going to wind up doing more QE and being stimulative to an economy that's already suffering from higher inflation. That's where that is a bigger problem. But the Federal Reserve will never go bankrupt. It's like the bank. It's like the bank in Monopoly, if you've ever seeing the rules in the bank and monopoly, never runs out of money. Just write down 100 on a sheet of paper.

There you've got another $100 bill. The Federal Reserve has the same ability to do that. They are, as my friend Paul Casary, the former chief economist Northern Trust used to say, they're a legal counterfeiter. So they can just basically counterfeit up as much money as they want. If you and I practice central banking, we go to jail for being counterfeiters. Wow. Wow. I have no opinions on this, though. I am definitely getting a lesson in economics today. All right, so I actually want to dive into each of these bank closures because I think the, you know, each of them has like a slightly different picture. So I was curious for your thoughts on Silvergate, what do you think was, you know, were some of the particular causes that they, for them to close?

My guess is a loss of confidence because of three letters, FTX, that people that were dealing with Silvergate didn't trust management. Because remember, when you're walking on a fractional banking system, you know, there's a lot of leverage and there's a lot of uncertainties. And it really comes down to confidence and trust. And it appears that in the case of Silvergate, there was a loss of confidence and there was a loss of trust. And that's why people were exiting. They were demanding their money back to the point where they couldn't continue as a going concern. Okay. And so we kind of talked about Silicon Valley Bank.

I don't know if there's anything additional you wanted to add on that one. No, just that, you know, a large part of their business was financing VC startups, VC startups. So, you know, they financed some VC raises a Series A for some startup. And all that money gets put into a bank account at Silicon Valley Bank. And then they have a burn rate, right? So that bank account goes down, down, down, down. But in this tech environment with how difficult it's been for the last year, year and a half in tech, it's hard to raise Series B or Series C to replenish that.

that account was very easy in 18 and 19 to raise that. So those accounts were bleeding out. They weren't at risk, but Silicon Valley Bank knew that that was happening. It was trying to manage it. It was more the yield seekers that really kind of snuck up on them. But I would also add the yield sneakers that at 5% said, you know what, I'm out of this bank. I'm going to put my money in a money market fund or buy T-bills. That's happening to every bank in the country right now.

But they were in a particularly vulnerable position. So while it's happening in other banks, they're not going to be squeezed as much as Silicon Valley Bank did. And out of curiosity, because so many people have been saying that VCs fomented that crisis at SVB, what do you think of that theory? Unless you think they want to commit suicide, that they were fermenting. It does not serve any VC's purpose to blow up the bank that they use. I mean, unless you're, unless we're referring to Peter Thiel's argument that all, the founder-funded companies need to pull out of SVB. I still don't think that that's the case, and even in that case, because it didn't serve, it doesn't serve anybody's purpose in Silicon Valley

that that bank blew up. And I also saw some theories that one of the causes is the repeal of certain parts of the dot-Frank law back in 2018. And do you think if those regulations had not been repealed, that Silicon Valley Bank would have survived? No, it would have gone sooner. It would have, it would have been made it, it would have, they would have gone sooner. The 2008, all the, what happened in 2008, try and explain this way, was banks made bad loans and they lost money. So we put together a bunch of rules so that they can't make bad loans again and lose money. So we also then forced banks to buy very high quality assets like Treasury securities. And then they took some duration risk along the way. So what we did was we forced. banks to take interest rate risk at a time when they should have been taking credit risk because credit has been doing much better than interest rates. But we changed the laws in order to do that. Remember that all regulators are generals that fought the last war, you know, so that

they're looking at the last war in 2008 and they're going to make sure that the next war is not 2008. It won't be. It'll be something different. I don't think that the problem was capital requirements. The problem was liquidity. and very few of the rules that they had would have addressed that. And also, they can't deal with the speed of what's going on.

By all accounts, 30 days ago, maybe 20 days ago, Silicon Valley Bank was a fine bank. There wasn't any problem with it. It was just in the last month or so as interest rates got above 3, 5%, and people started rolling out. Also, I'm going to hold up my phone. Here's my phone, like your phone. we are in the world of mobile banking. And I think people need to understand that $42 billion was withdrawn from Silicon Valley Bank last Friday in one day.

Oh my God. How did $42 billion get withdrawn if there was nobody lined up in front of the bank? They were all laying in bed using their mobile banking out. And so regulators have got to learn now. And I think they're learning the hard way and they're scared, if I could say it, they're scared shitless. that the velocity of deposits is much higher than they've ever imagined it would be. It is so easy for me to just log on to this thing and say, I'm done with your 30 basis point savings account.

I'm going to a money market fund that's going to yield me $4.75. I'd be done in five minutes. And so the money is moving around the banking system faster than anybody could have ever imagined. And this is the thing that I think shocked them in terms. terms of the speed of money that is coming out of these banks and is going to continue to be a problem for banks like First Republic, PAC West, and the like as well. These are other big West Coast regional banks that have been rumored to have some kind of issues as well. As a matter of fact, as we're talking, it looks like First Republic might be getting a bailout from other banks

at this point. They're essentially a failed bank, but they're not being bailed out by the government. to be bail out by Wall Street, but they couldn't make it on their own as a standalone. Wow. So the one bank closure that seems a little bit irregular is signature. Why do you think it was closed? That's like that is an interesting one because by all indications, no one was talking about signature. Well, we were talking that signature bank had some issues, but not had the libertating issues. There was no worse or better than First Republic or some of the others. And then they were summarily closed and the board was fired on Sunday night. Now, I'll just repeat what Barney Frank said. Barney Frank, the former congressman from Massachusetts, who's the name Dodd Frank. He's the second

name on it, was a director of signature bank, $110 billion bank, maybe 80% of their business was traditional commercial real estate lending, business loans and the like. And they also had the Cigneck platform as well. It was only 20% of the business. It wasn't a large part of their business. Well, after Silvergate failed, they were having problems that a lot of their real estate borrowers and a lot of other people knew that they had the CigNet digital platform and they don't understand crypto and they just know crypto bad. They believe the FUD that crypto is all, you know, terrorists and drug dealers and they just wanted away from them. So they were having an issue. But Barney said that by Sunday night, they thought that they had the issue patched up enough that the bank

could open on Monday. But then the FDIC stepped in. It said, nope, you're done. We're going to fire the board. We're going to take over the bank. And he thinks it was intentional to bury Cignaut. And so is the CEO. He has said that as well, too. I would like to see some evidence that that bank was incapable of opening on Monday morning. I don't, maybe they've published it and I haven't seen it, but I haven't seen that evidence. Now, what I do see is the New York State Attorney General saying, well, they were under investigation. Fine. If you're going to close every bank under investigation, I expect 2,000 banks to be closed tomorrow. Lots of banks are under investigation for lots of reasons. We don't run in there, fire the management and have the government immediately take them over.

We only do that when there's a bank run or there's a, or there's a, or there's a, widespread systemic failure, not that there's an investigation. So I'm waiting for the evidence that that bank was incapable of opening Monday morning because the director and the CEO said they were capable of opening Monday morning. And the regulator should have given them an opportunity to try and survive. So yeah, it does smell a little fishy here what happened with that bank. Maybe it isn't. But I'm waiting for evidence that, no, they were in a much worse shape that Barney Frank has been misrepresenting the actual financial position of the bank when he said that they were able to open on Monday morning. Yeah. And I should point out that Reuters reported that there are bids being taken to acquire the bank, but that apparently the bidders are not allowed to offer crypto services.

So that means CigNet will be shut down if it's reopened. So again. The depositors are owed 100 cents on the dollar. And CigNet is something of value. And if they are not going to sell Cignaut, then they better make sure that they could pay the depositors 100 cents on the dollar without dipping into the bailout fund, the FDIC deposit fund. Because then they're ripping off the taxpayer by not selling Cigna. And of course, by selling that, you are de facto saying somebody, else could continue to offer crypto services.

I also wanted to ask about stable coins because Circle revealed on Friday that it had $3.3 billion in U.S.C. reserves held at SVB. And so over the weekend, we saw the value of that stable coin dropped to as low as 88 cents. And I wondered what you thought that whole incident said about the viability of reserve-backed stable coins going forward. I'll tease. I know who we're going to have on it. It teases that the egregious mistake was not letting Caitlin Long open custodia because it needs to be opened yesterday. yesterday and that they should not be holding their money in a fractional reserve bank, but they have no choice because it's the only place they can.

I would actually argue to you that first of all, what happened with USDC was pretty orderly and understandable, that when the news came out that 8% of the backing of the coin was in Silvergate Bank, it traded down the 88 cents, as you said, for a hot second. but it pretty much leveled out at around 92 cents. Okay, 8% of the money is trapped in a bank that they can't get. So the new peg is now 92 cents. You don't like it if you owned it at a dollar, but that made sense. Then as we realized, okay, they're probably going to get 50 cents on the dollar back on Monday.

It traded back up to 95, 96 cents. Okay, that makes sense. And then as the bailout came in and they were going to get 100 cents on the dollar, by Monday morning, it traded back to its peg of $1. So it wasn't chaotic. Other than that brief hot second, it went to 88 cents, it seemed to be, I hate to say, another example that the crypto system works. You may not like the price, but it worked.

It worked. It was rational. It was understandable. If you had 8% of your money tied up in somewhere where you couldn't get it, then your new peg is 92 cents. When you were able to get that 8% percent back, your new peg is a dollar. That's the way I kind of see what happens. happen with USDA. And I might add that yet again, I'm a big fan of curve finance, that the three pull on curve finance worked like a charm to allow people to move between them and tether and die.

There was probably more misunderstanding about die that die traded down too low to around 91 cents. It is, die has some backing by USDC, but not 100% backing. It should. it traded 92 cents with circle trading 92 cents because it's not fully backed by only circle. So there was a little bit of misunderstanding there. But then with three pool, if some of the DGins want to put a wrong price on it, then they're going to get their pockets cleaned. And they did. The system worked.

And it has been working. One of the things I've been very impressed about for the last year or so is defy's work. It doesn't go down. They had a little bit of a problem in 21 with that going down, but not last year. And it works. You don't like the prices, but that they don't close and demand a bailout. All the closes and demands a bailout are all the C-5 firms that are doing that. With the exception of maybe UST, that might be one exception.

But mostly it's worked much, much better than the unstable tradfai system that we have right now. Last quick question, Fed Now, which will enable instant payments around the clock, 24-7-365, will launch in July. How do you expect that to affect banking and the possibility for these types of closures? Well, let's remember what Fed Now is, is that right now we have the ACH system. And the ACH system means, you've probably seen it, and I've probably seen it when you go and you pay your bills online, that, you know, it's going to get to the money, they're going to get the money in two days. because we have the system from the 70s that is the Fed has allowed 40-year-old technology to still be the order of the day.

What they did in 2020 was they announced that they were going to take, they were going to revamp the system in the Fed now. So they took 2015 technology in 2020 because they wanted stable technology and that means five-year-old technology. And it took them three years to do what most developers can do in 60 days because they're the Fed. And they're now rolling out Fed now in 2020. So now we're going to go from 40-year-old technology to 8-year-old technology.

And then they won't update it and eventually that'll get out of date as well, too. They're going to roll it out in various forms where it's only going to be available bank-to-bank, and then it's going to be available for large customers. It's going to be a while before you and I could actually go online, pay my utility bill, and the utility will get that money immediately and not without that two-day lag. We'll eventually get there. but we're going to have to see where we go. Now, like I said, the problem is, you know, they're going from 1978 to 2015, and that's better,

and that's going to be, and that's going to help for a lot of transactions. But there's going to be no innovation after that. The innovation is going to come from defy and it's going to come from stable coins, and it's going to come from fintech in terms of the payments. I think if anything, what Fed now will do is it'll be a boon, some of the fintech companies because they they're building shiny slick apps and shiny slick protocols on 40-year-old rails. And so now at least they'll have eight-year-old rails and it'll help them, you know, to process payments a little bit faster. Look, let me give you a quick example.

There's a payroll processing company called Rippling. Their VC startup. They had their money with CVB, Silicon Valley Bank. They were in the process. of processing payrolls for hundreds of companies for March 15th, which was the day before we're recording. And they put out a letter on Sunday morning that because they were in the process of doing the payrolls and the bank failed, the companies can't get their money back and they can't finish processing payroll so no one's going to get paid. Now, that got resolved Sunday night when the FDIC said, we're going to release all the money Monday morning. But why did that happen because the ACH system means that you have to give the money to the processor and then they

process it and they give it to the bank and everybody holds their breath for two days to wait to make sure that the bank says okay now you can release the funds to to all of the all of the payees and then they have to wait two days to once they try to transfer to their bank in order to get the money and if in that two-day period somebody fails everybody loses and that's what happened a Fed now an instant payment system, now I've collapsed it down to five seconds. Then hopefully in that five second period, the bank doesn't fail and everybody still gets their money. So definitely is better. It is definitely an improvement, but it's not the fix. The Fed is trading in their 40-year-old used car for an eight-year-old used car. An eight-year-old used car is better than a 40-year-old used car,

but it's still a used car. Okay. Well, yeah, this has been highly illuminating. Thank you so much for explaining it all. Thank you. Don't forget. Next up is the weekly news recap. Stick around for this week in crypto after this short break. Join over 50 million people using crypto.com, one of the easiest places to buy, earn, and spend over 250 cryptocurrencies. Spend your crypto anywhere using the crypto.com visa card. Get up to 5% cash back instantly. Plus, 100% rebates for your Netflix and Spotify subscriptions and zero annual fees. Download the crypto. dot com app now and get $25 with the code Laura

link in the description Amazon presents Jamal versus the Shih Tzu Descending from the gray wolf shitsuz live by their own untamed primal code of not giving a single Shih Tzu

but Jamal shopped on Amazon and bought dog treats chew toys and 32 ounces of carpet cleaner. Hey Jamal you've been promoted to Pack leader. Save the everyday with deals from Amazon. Thanks for tuning in to this week's news recap. Crypto might have been debanked.

After I wrapped my interview with Jim, news broke on a few additional developments around crypto banking. The Blockchain Association, a leading crypto advocacy organization, is looking into the possible debanking of crypto firms after the recent failures of Signature Bank, Silicon Valley Bank, and Silvergate. The investigation aims to uncover any hidden truths about the potential debanking, such as account closures, and refusal to open new accounts for legitimate crypto businesses. Also, on Thursday, Global Custody Bank, State Street, announced the termination of its partnership with Copper, a crypto custody firm that recently decided to shut down its enterprise infrastructure division. The two companies have mutually agreed to end their licensing

agreement and will individually pursue their digital strategies. State Street plans to develop a, quote, multifaceted solution for both tokenized securities and native tokens. It acknowledges the evolving regulatory landscape for digital assets. But it was not all bad news for Tradfai companies and crypto this week. Fidelity, one of the largest funds in the world, opened Fidelity Crypto to millions of retail users, allowing commission-free Bitcoin and Ether trading, with a maximum 1% spread, positioning itself, ahead of most U.S. peers in offering crypto to retail clients. Bitcoin and Ether soar. Following weeks of hovering around $20,000, Bitcoin surged to a nine-month high, exceeding $26,000 in the wake of SVB's collapse and the publication of February's U.S. inflation data

that met expectations. This price surge can be attributed to the intervention to save SVB, leading market participants to foresee lower interest rates in the future. Meanwhile, Ethereum is up 13% over the past seven days and has reclaimed the $200 billion market cap line. Oiler Finance loses almost $200 million in a hack. Oiler Finance, a decentralized finance or defy protocol, lost $197 million in a flash loan exploit on Monday. Now its team is collaborating with law enforcement and security firms to recover the stolen funds. The Ethereum-based non-custodial lending platform, which raised $32 million in funding from Uniswap, Coinbase, and FTX in 2020.

was targeted by an attacker who used flash loans to exploit the liquidation logic. Blockchain security firm Slow Mists analysis revealed that the attacker donated funds to a reserve address, bypassing liquidity checks, and triggered a soft liquidation to obtain collateral funds without assuming all liabilities. The exploiters stole various tokens including ETH, USDC, and Bitcoin. The exploit impacted other defy protocols, such as Balancer, Angle, and Idle Finance. Balancer temporarily disabled its user interface for exiting positions from the Euler-based USD pool, while Engel and IEL finance have millions of dollars in USD trapped in Euler. The Euler Foundation is attempting to negotiate with the anonymous attacker and has communicated with

them via blockchain transactions, demanding the return of 90% of the stolen funds or risk-facing legal action. If uncooperative, Euler plans to offer a $1 million reward for information leading to the hacker's arrest. Meanwhile, the hacker has moved 1,100 ETH, valued at $1.8 million, into the crypto mixer tornado cash, aiming to obscure the origin of the pilfered funds, according to security company BlockSik. Ethereum developers deploy Chepella on TestNet. Ethereum's highly anticipated Shanghai upgrade moves closer to realization.

The Chepella upgrade was activated on the Goerly TestNet, which marks the final testing stage before deployment on the main net, which is expected to happen on April 12th. Chappellea merges the names of the Shanghai and Capella hard forks. Shanghai corresponds to the fork on the execution layer, while Capella represents the consensus layers upgrade. With Chappellella, validators can test ETH withdrawals from the deposit contract after over two years of staking ETH. Several validators have already started testing the withdrawal feature, with 21,601Eth, distributed, and 4,800 validator withdrawals. Christine Kim of Galaxy Digital and I had a great conversation about the upgrade in

this week's Tuesday episode of Unchained. Go listen to it if you haven't already. Coinbase also announced that it will start accepting unstaking requests approximately 24 hours after the Shanghai Capella upgrade goes live. In other news around blockchains and defy, Arbitrum, one of the biggest layer two projects on Ethereum, plans to airdrop its governance token, ARB, to community members on March 23rd. The token will govern the Arbitrum 1 and Nova networks via a Dow backed by a security council. With 12.75% of the total supply distributed, the AirDrop aims to, quote, give governance power over to the community members and try to identify the real community members that are active in the chain, according to Offchain Labs' CEO, Stephen

Goldfeeder. Decentralized storage platform, Filecoin, introduced smart contract support through its new virtual machine. Metamask updated its crypto wallet to address privacy concerns, allowing users to maintain separate accounts when connecting to applications. And finally, Uniswap announced its expansion to B&B chain after a governance proposal was passed with support from over 55 million unitoken holders. Meta stops working on NFTs. Meta has decided to end support for non-fundable tokens or NFTs across its social media platforms, including Facebook and Instagram.

Announced on Monday by Meta's head of commerce in fintech, Stefan Casreal, the company will quote, apply the lessons learned from NFTs to other products supporting creators, users, and businesses on their apps and in the Metaverse. The decision comes less than one year after CEO Mark Zuckerberg first announced plans to integrate NFTs on Meta's platforms, and less than 10 months after NFTs were first introduced on Instagram. The Crypto community's reaction to meta's decision has been mixed. Critics argue that digital ownership is the future, while others believe that meta's withdrawal from NFTs could be beneficial, providing more time for the industry to improved products, user experience, and safety measures. Hunter Solair from Pixelmon said, quote,

NFTs aren't ready to reach the masses yet. The quote, Metaverse is real, but it's going to take five years, not five months. Bankruptcy lawyers seek pause on Bankman Freed's share dispute. Bankruptcy lawyers are discussing a deal to pause litigation concerning Sam Bankman Freed's $465 million worth of Robin Hood shares until his criminal case is resolved. Defuncted crypto companies, FTCX and BlockFi are both attempting to claim the shares, which were seized by the Justice Department in January. Prosecutors are concerned that disputes over the shares could interfere with Bankman Freed's ongoing criminal case. Working on the deal are the lawyers for emergent fidelity technologies, which bought the shares, as well as attorneys for FTCX and BlockFi. The FTCS founder

is facing multiple criminal charges over his alleged misconduct and could face life imprisonment if convicted. He has argued that he needs the Robin Hood shares to fund his legal defense. Moreover, Bankman Freed has requested to use FTX's director and officer liability insurance to cover his legal expenses. If granted, this would place him at the front of the line for an FTCS payout, ahead of the company's creditors. FTCS's new leadership has not agreed to the request, prompting Bankman Free to seek a court order to enforce it. In another FTX-related development, several social media influencers including Erica Kohlberg, Ben Armstrong, aka BitBoy, and Kevin Paffrath, face a lawsuit accusing them of promoting FTX without disclosing payment details or compensation. The suit alleges some influencers removed FTX endorsement videos and posted apology messages instead.

With both U.S. and non-U.S. plaintiffs, the lawsuit seeks class action status, aiming to help victims recover damages. U.S. U.S. government calls for pause on Binance U.S., Voyager Digital Deal. The U.S. government has called for a haul on the $1 billion deal between Binance U.S. and bankrupt Pryptolender Voyager Digital. The U.S. trustee, a Department of Justice branch, responsible for bankruptcy cases, expressed concerns that the deal could grant Voyager and its staff immunity from past tax or securities law violations. U.S. Attorney Damian Williams argued that the court should either put the deal on hold or at least those parts that limit the government's ability to enforce the law until higher courts address the appeals. Terraform Labs is under investigation.

According to a report from the Wall Street Journal, the Justice Department is investigating the 2022 collapse of the Terra-USD stable coin, which may result in U.S. criminal charges against its creator Doe Kwan. The FBI and the Southern District of New York have questioned former Terraform Labs team members and are exploring similar issues as those in the SEC's civil fraud lawsuit against Kwan and TFL, which accuses Kwan of misleading investors about the risks of U.S.T, which lost is $1 peg and wiped out $40 billion in market value. In another development, U.S.S. prosecutors are examining chat group conversations amongst trading firms, including Jump Trading Group, Jane Street Group, and the FTX affiliate Alameda Research about a potential

TerraUSD bailout that did not end up happening. Prosecutors are investigating whether market manipulation was involved in the conversations. Gary Gensler suggests POS tokens are securities. SEC Chair Gary Gensler has suggested that tokens native to staking protocols could be considered securities under U.S. law because of the returns to... token holders expect from staking. If so, token issuers would be required to register with the SEC under U.S. law. His comments come only days after New York Attorney General Letitia James claimed that Ether is a security in a lawsuit against Ku-coin. Gensler has previously mentioned that proof-of-stake tokens could be considered securities, and the SEC recently undertook its first

staking as a service enforcement action, settling with Cracken. Chinese businessman is arrested for orchestrating multiple fraudulent schemes. Exile Chinese businessman Guo Wang Wei, with connections to Steve Bannon, was arrested in New York and charged with fraud, including a $500 million crypto scam. Guo allegedly orchestrated multiple schemes defrauding investors out of a total of $1.4 billion. Three of the schemes were related to GTV Media Group, which Guo co-founded with Bannon. The fourth scheme, called H-Coyne or Himalaya coin, raised $500 million from retail investors. The SEC accused quo of falsely claiming H-coin was 20% backed by gold and promising to cover 100% of investment losses. Authorities have seized over $630 million from his bank accounts.

Time for fun bits. As mentioned earlier, this week, Bitcoin and the price of other crypto assets rallied, with Bitcoin up 20% and ETH up 7% as of press time. Ginny Hogan from Unchained has the scoop. Not be good, the price of Bitcoin is up. At $26,000, it hit its peak since June 2022. Honestly, watching its value rise to its highest level in nine months is the closest most Bitcoin Bros will come to ever giving birth.

Even though crypto is now totally unbanked after the collapse of Silicon Valley Bank, Signature Bank, and Silvergate Bank, this rise in Bitcoin's price might be evidence that maybe banking is overrated. Personally, I keep all my money in Benmo. I'm saying that regulators shut down Signature Bank in an attempt to send an anti-crypto message, but this is evidence that their plan has backfired. I can't decide if I find that satisfying. Being asked to choose who I'm rooting for between regulators and Bitcoin holders is like being asked if I want the temperature at 12 degrees or 112 degrees.

Regulators missed the mark here. They don't need to shut down a whole bank just to send an anti-crypto message. It would be enough to just read the quote tweets on anything SBF puts out. It's not as though crypto is permanently unbanked either. Like a bunch of banks have indicated that they may tentatively accept crypto, including Santander, HSBC, Deutsche Bank, and the Ghost of Bear Stearns. Thanks so much for joining us today. To learn more about Jim and the recent market developments around these bank closures, check out the show notes for this episode.

Unchained is produced by me, Laura Shin, without from Anthony Yoon, Mark Murdoch, Matt Pilchard, Zach Seward, Wanneranovich, Sam Shreiram, Jenny Hogan, Ben Munster, Jeff Benson, Leandro Camino, Pam Majumdar, Shashonk, and CLK transcription. Thanks for listening.