Tag: Us Economy

Crypto-friendly banks closure could pose a challenge for crypto companies

by Blockchain News

The closure of three major crypto-friendly banks in the US, Signature Bank, Silicon Valley Bank, and Silvergate Bank, has sent shockwaves across the digital asset industry. According to some in the crypto community, this could pose a significant challenge for crypto companies in accessing traditional banking partners.

On March 12, the Federal Reserve announced the closure of Signature Bank, citing “systemic risk” as the reason for the bank’s closure. It came only days after the closure of Silicon Valley Bank, which was ordered to shut down on March 10. A week prior, Silvergate Bank, another crypto-friendly bank, announced that it would close its doors and voluntarily liquidate on March 8.

At least two of these banks were seen as important banking pillars for the crypto industry. Signature Bank had $88.6 billion in deposits as of Dec. 31, according to insurance documents. The Silvergate Exchange Network (SEN) and Signature Bank’s “Signet” were real-time payment platforms that allowed commercial crypto clients to make real-time payments in dollars at any time. Their loss could mean that “crypto liquidity could be somewhat impaired,” according to comments from Nic Carter of Castle Island Ventures in a March 12 CNBC report. He said that both Signet and SEN were key for firms to get fiat in but hoped that other banks would step up to fill the void.

Crypto investor Scott Melker, also known as The Wolf Of All Streets, believes that the collapse of the three banks will leave crypto companies “basically” without banking options. “Silvergate, Silicon Valley, and Signature all shuttered. Depositors will be made whole, but there’s basically nobody left to bank crypto companies in the US,” he said.

Meltem Demirors, chief strategy officer of digital asset manager Coinshares, shared similar concerns on Twitter, highlighting that in just one week, “crypto in America has been unbanked.” She noted that SEN and Signet “are the most challenging to replace.”

However, some in the industry believe that the closure of the three firms will create room for another bank to step up and fill the vacuum. Jake Chervinsky, head of policy at crypto policy promoter the Blockchain Association, said the closure of the banks would create a “huge gap” in the market for crypto-friendly banking. “There are many banks that can seize this opportunity without taking on the same risks as these three. The question is if banking regulators will try to stand in the way,” he added.

Meanwhile, others have suggested that there are already viable alternatives out there. Mike Bucella, General Partner at BlockTower Capital, told CNBC many in the industry are already changing to Mercury Bank and Axos Bank. “Near-term, crypto banking in North America is a tough place,” he said. “However, there is a long tail of challenger banks that may take up that slack.”

Ryan Selkis, CEO of blockchain research firm Messari, noted that the incidents have seen “Crypto’s banking rails” shuttered in less than a week, with a warning of the future for USDC. “Next up, USDC. The message from DC is clear: crypto is not welcome here,” he said. “The entire industry should be fighting like hell to protect and promote USDC from here on out. It’s the last stand for crypto in the US,” Selkis added.

USDC, which is the second-largest stablecoin by market capitalization, has been hit hard by the recent bank closures. Circle, the issuer of USDC, confirmed on March 10 that wires initiated to move its balances at Silicon Valley Bank had not yet been processed, leaving $3.3 billion of its $40 billion USDC reserves at SV. The news prompted USDC to waver against its peg, dropping below 90 cents at times on major exchanges.

However, as of March 13, USDC was climbing back to its $1 peg following confirmation from CEO Jeremy Allaire that its reserves are safe and the firm has new banking partners lined up. Despite the recent challenges, many in the crypto community believe that stablecoins like USDC will play a vital role in the future of digital assets.

The closure of these crypto-friendly banks has raised concerns among regulators, who fear that it could lead to a loss of confidence in the banking system. Some experts believe that regulators may step in to prevent other banks from taking on the risks associated with serving crypto companies.

However, others argue that regulators should not stand in the way of innovation and that banks should be allowed to serve the needs of the crypto industry. They believe that crypto companies should be treated like any other legitimate business and that they should have access to banking services.

The recent bank closures also highlight the need for crypto companies to have robust risk management strategies in place. As the industry continues to grow, it will face increasing regulatory scrutiny, and companies will need to be prepared to navigate these challenges.

In conclusion, the closure of three major crypto-friendly banks in the US has raised concerns about the future of digital assets in the country. While some in the industry believe that it could create room for another bank to step up and fill the vacuum, others are concerned that it may leave crypto companies without banking options. The recent challenges faced by stablecoins like USDC also highlight the need for robust risk management strategies in the digital asset industry. Despite the challenges, many in the crypto community remain optimistic about the future of digital assets and believe that they will play a vital role in the global economy.

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US GDP Shrunk by 0.9% in Q2, Implications for the Crypto Industry

by Blockchain News

The United States of America (USA), highly regarded as the world’s largest economy, has seen its Gross Domestic Product (GDP) shrink by 0.9% in the second quarter of the year.

GDP2.jpg

While the reporting agency, the National Bureau of Economic Research (NBER), has chosen not to call a recession yet, the declining GDP, trailing the 1.6% fall in the first quarter, has largely pointed to the onset of a recession.

Many factors have converged to usher in this recession, including the growing job loss and the continuously hiked interest rate, the latest of which is the consecutive 75 basis point increment announced on Wednesday.

These factors have joined in slowing down the pace of growth of the GDP and are a pointer to how weak the economy is in general.

“Recent economic data may not paint a consistent picture, but a second consecutive negative quarter for GDP provides further evidence that, at best, economic momentum continued its marked slowdown,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “The path for the Fed to raise interest rates without pushing the economy into recession has become exceptionally narrow. There’s a growing possibility that it may have already closed.”

While the fears of a recession are high, Fed Chair Jerome Powell has hinted that subsequent interest rate hikes, should the rate of inflation persist, will be tapered down from the current 0.75% increment. 

Where is Crypto in All This

Should the US economy plunge into a recession, the digital currency ecosystem might have received the new lease of life it has been searching for all year long. 

A declared recession implies that the Federal Reserve will have to cut down on its interest rate hike in a bid to help prop up spending in the economy. The spending will definitely involve injecting funds to revive the economy, and the excess cash flow will notably continue devaluing the Dollar, which will make a case for Bitcoin and other altcoins as a perfect hedge against inflation.

At the time of writing, the market is reacting positively to this news as investors seem to have projected all possible scenarios in both the mid and long term. Bitcoin is trading at a price of $23,998.00, up 10.60% at the time of writing, while Ethereum has gained 15.34% to $1,731.96, according to data from CoinMarketCap.

Image source: Shutterstock

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Bitcoin price overcomes $50K, stocks slide after disappointing US jobs report

by Cointelegraph

The S&P 500 slid to yesterday’s intraday highs while Bitcoin (BTC) climbed to its best levels in more than three months. The moves came as a key report on Friday showed that the United States economy added fewer jobs than anticipated, lowering the Federal Reserve’s likelihood to start unwinding its stimulus program this year.

The U.S. Bureau of Labor Statistics revealed that the nonfarm payrolls (NFP) grew by 235,000 in August against the expectations for 733,000 positions. Nevertheless, the unemployment rate inched lower to 5.2% from 5.4% in the previous month.

Delta FUD behind Bitcoin pump?

Hospitality and leisure sector saw no job gains in August, in contrast to its average increase of 350,000 positions per month over the previous six months. Meanwhile, the restaurant sector lost 42,000 jobs, signaling fears about the fast-spreading delta variant of Covid-19.

Bitcoin rose by 3.41% to $50,961 in anticipations that a slowdown in the U.S. jobs sector would prompt the Federal Reserve to limit its taper tantrum. 

Bitcoin 1-hour candle chart. Source: TradingView.com

The world’s best-known cryptocurrency had struggled in the second quarter of 2021 amid a global economic rebound from the pandemic. It fell from around $65,000 to below $30,000 after facing additional headwinds from a full-fledged crypto ban in China and Elon Musk’s anti-Bitcoin tweets.

At the same time, the global economic recovery raised speculations that central banks would unwind their massive monetary support. In the U.S., Federal Reserve Chairman Jerome Powell said that they would begin tapering by the end of this year if the economy achieves “maximum employment.”

But delta variant kept denting hopes of a steady economic and labor market recovery. Moreover, Friday’s job data hinted that the US central bank would need to continue its $120 billion a month asset purchase program.

The outlook stressed the U.S. dollar lower and sent non-yielding hedging assets like Bitcoin and gold high.

Bitcoin price daily chart versus spot gold (XAUUSD) and the U.S. dollar index (DXY). Source: TradingView.com

“The cross-over above the $50,000 price mark has revealed two crucial discoveries for the digital currency,” said Petr Kozyakov, co-founder and CEO of the payment network Mercuryo.

“One is that the premier cryptocurrency still has the inherent features that attract investors and buyers, and secondly, the increased price valuation has not yet eliminated the volatility that surrounds the digital asset.”

Kozyakov anticipated that loose monetary policies, coupled with Bitcoin’s growth as a recognizable financial asset on Wall Street, would push its prices to $55,000 in the near term, and $70,000 in the long term.

Unemployment benefits expiring soon

The extremely weak NFP report came just days before the scheduled termination of federal unemployment benefits that the U.S. administration had put in place to cushion the economic damage caused by the pandemic.

Moreover, an additional aid that gives unemployed Americans $1,200 a month will expire on Sept 6. That would effectively remove aid to about 7.5 million people when delta cases are rising in parts of the U.S.

Goldman Sachs noted that unemployment benefits also kept Americans from applying for jobs throughout July. The banking giant forecasted Sep. 6 termination to raise nonfarm payrolls to 1.5 million by the end of 2021.

The next Federal Reserve meeting will take place mid-Sept and will expect to shed more light on their taper plans in light of a weaker NFP report.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.