"Nope, sorry, it’s not. SVB is just the latest domino.
The dominos have been moving down the risk curve.
It started in Crypto with Three Arrows Capital and Luna.
Then FTX was exposed for being a fraud."
Peter Schiff podcast.
Liquidation
On 16 June 2022, the Financial Times reported that Three Arrows had failed to meet its margin calls.[30] On 22 June, The Wall Street Journal reported that Three Arrows had failed to repay money lent from cryptocurrency broker Voyager Digital.[31] On 27 June 2022, Voyager Digital issued a notice of default against Three Arrows for failing to make the required payments on a Bitcoin and USD Coin loan worth more than $665 million.[32] On the same day, a court in the British Virgin Islands ordered the liquidation of Three Arrows Capital, overseen by Teneo. The Joint Liquidators are Russell Crumpler and Christopher Farmer, both Senior Managing Directors of Teneo.[1][33][34]
On 2 July 2022, Three Arrows filed for Chapter 15 bankruptcy to protect its US assets from creditors.[35] The firm's CEO, Stephen Ehrlich, attributed the decision in part due to Three Arrows' inability to pay back its loan from Voyager.[36]
Genesis Trading's CEO Michael Moro announced on Twitter that Genesis Trading had incurred substantial losses from loans to Three Arrows and that its parent firm Digital Currency Group has assumed certain liabilities of Genesis related to Three Arrows to ensure adequate operating capital.[37]
The collapse of the company is believed to be partially responsible for the bankruptcy and collapse of the crypto lender Voyager digital and layoffs at Blockchain.com. FTX founder and CEO Sam Bankman-Fried blamed the company for causing a ripple effect that caused bankruptcy of other crypto firms or lead those firms to freeze assets during the 2022 cryptocurrency crash.[38][10]
According to court liquidation papers, Davies and Zhu have not been cooperating in the liquidation process of Three Arrows Capital, and their whereabouts was unknown as of 8 July 2022.[39] Three Arrows Capital owes 27 creditors a total of US$3.5 billion.[40]
In an interview with Bloomberg held at an "undisclosed location" in July 2022 Zhu and Davies remarked that they plan to move to the United Arab Emirates,[41] a country that does not have extradition agreements with either Singapore or the United States.[citation needed]
Collapse
See also: Cryptocurrency bubble § Collapse of Terra-Luna
Beginning on 9 May 2022, the tokens made headlines after UST began to break its peg to the US dollar. Over the next week, the price of UST plunged to 10 cents,[20] while Luna fell to "virtually zero", down from an all-time high of $119.51.[21] Before the crash, Luna was one of the top ten largest cryptocurrencies on the market.[22] The collapse wiped out almost $45 billion of market capitalisation over the course of a week.[2][23]
On 13 May, Terraform Labs temporarily halted the Terra blockchain in response to the falling prices of UST and Luna.[21][24] Despite the company's attempts to stabilise UST and Luna via its bitcoin and other cryptocurrency reserves from the Luna Foundation Guard, the 1:1 peg of UST to USD did not materialise. As of 16 May 2022, blockchain analysts claim that the usage of the bitcoin reserves of LFG still remains largely uncertain.[25][26]
Likely causes of the collapse included mass withdrawals from the Anchor Protocol days before the collapse, investor concerns about cryptocurrencies more generally, and a drop in the price of bitcoin.[27][28][29] During the collapse, holders converted Terra into Luna via the mint-and-burn system, which caused the price of Luna to collapse due to its increased supply.[30] This in turn destabilised the balancing mechanism between the currencies.[28]
On 25 May, a proposal was approved to reissue a new Luna cryptocurrency and to decouple from and abandon the devalued UST stablecoin. The original blockchain is now called Terra Classic (LUNC), and the original Luna token is called Luna Classic.[31][32] The new Luna coin is called "Terra 2.0" by investors, and has lost valuation in the opening days of being listed on exchanges.[33][34][35]
In an August 2022 interview on the NFTV series Coinage, which occurred few months following the collapse Terra founder Do Kwon remarked that irrational with his level of confidence with the Terra blockchain system before the collapse. However, he would also deny that the Terra system was a ponzi scheme.[36]
Bankruptcy and unauthorized transactions
On November 10, Axios cited anonymous sources who said that FTX approached Kraken for a potential rescue deal.[73] Bankman-Fried made several statements on November 10, taking responsibility for FTX's failure and indicating that FTX was still seeking capital to remain solvent.[74] Bankman-Fried also announced that Alameda Research would cease trading and end operations.[75] FTX's in-house legal and compliance teams had, for the most part, resigned by November 10.[76][77] Anonymous sources cited by the Wall Street Journal on November 10 said that Alameda Research owed FTX some $10 billion, as FTX had lent funds placed on the exchange for trading to Alameda so that Alameda could make investments with the money.[49] On November 12, anonymous sources cited by the Wall Street Journal said Alameda CEO Caroline Ellison disclosed to other Alameda employees that she, Sam Bankman-Fried, Gary Wang, and Nishad Singh knew that client deposits were transferred from FTX to Alameda.[50] An anonymous source cited by the New York Times on November 14 said the same.[51] According to the sources cited by The Wall Street Journal, Ellison said the funds were used in part to pay back loans Alameda had taken to make investments.[50]
Though Bankman-Fried, on November 10, wrote on Twitter that FTX's US customers did not have reason to worry, employees began attempting to sell assets belonging to the firm on the same day.[78] These assets include stock-clearing company Embed Financial Technologies and the naming rights to FTX Arena.[78]
On November 10, the Securities Commission of the Bahamas froze the assets of one of FTX's subsidiaries, FTX Digital Markets Ltd, "and related parties", and provisionally appointed an attorney as liquidator.[79][80] Japan's Financial Services Agency ordered FTX Japan to suspend some operations.[81][82] The company's Australian subsidiary was placed under administration.[81]
On November 10, the team running the FTX Future Fund, an otensibly charitable group bankrolled by Bankman-Fried, announced that they had resigned earlier that day.[12] Future Fund had committed $160 million in charitable grants and investments by September 1 of that year.[83] Crypto lender BlockFi, which was affiliated with FTX, announced on November 10 that it was suspending operations as a result of FTX’s collapse.[12]
On November 11, FTX, FTX.US, Alameda Research, and more than 100 affiliates filed for bankruptcy in Delaware.[14][12][15] Anonymous sources cited by the New York Times said that the exchange owed as much as $8 billion.[12] Bankman-Fried resigned as CEO and was replaced by John J. Ray III, a corporate restructuring specialist who'd previously overseen the liquidation of Enron.[14][15][84]
Late on November 11, over $473 million in funds were siphoned from FTX through what Ryne Miller, FTX US's general counsel, characterized as "unauthorized transactions".[85] Miller announced that FTX and FTX US intended to move remaining funds denominated in cryptocurrency to offline "cold storage" for security.[85] The funds taken from FTX were mostly stablecoins such as Tether, and were quickly exchanged for Ether, a method used by cryptocurrency thieves to thwart attempts to retrieve stolen funds.[86] A person speaking on behalf of FTX referred to the "unauthorized transactions" as a "hack" and encouraged users to delete FTX mobile apps as they were compromised.[87] Kraken has since offered to assist in identifying the perpetrator.[88]
As of November 12, Bankman-Fried told Reuters that he was still in the Bahamas,[89] though other high-ranking FTX employees had begun leaving for Hong Kong, the location of the company's former headquarters, or other locations.[87] Authorities in the Bahamas, including the Royal Bahamas Police Force, questioned Bankman-Fried on November 12.[90] Despite FTX's bankruptcy, Bankman-Fried continued to attempt to raise money for the firm during the weekend of November 12 and 13.[91]
On November 14, Kraken's chief security officer said on Twitter that the firm knew "the identity" of a user who paid transaction fees associated with moving the stolen money through their Kraken account.[92] In an interview with Kelsey Piper published November 16 by Vox, Bankman-Fried blamed an "ex-employee" or malware on a device owned by an ex-employee for the theft.[93]
According to anonymous sources cited by Reuters, between $1 billion and $2 billion in customer funds could not be accounted for as of November 12.[94][95] The Financial Times reported that FTX's balance sheet shortly before the bankruptcy showed $9 billion in liabilities, with $900 million in liquid assets, $5 billion in "less liquid" assets, and $3.2 billion in illiquid private equity investments.[96]
Bankman-Fried began publishing "cryptic" messages in sequence on Twitter on November 14.[97] As of November 15, the messages all read "What HAPPENED".[97]
On November 15, FTX sought to raise $10 billion in liquidity from investors.[98]
On November 17, John J. Ray III, the CEO brought in as a liquidator, stated in a sworn declaration submitted in bankruptcy court that, according to FTX's records, its subsidiary Alameda Research had on September 30 lent $1 billion to Bankman-Fried and more than $500 million to FTX co-founder Nishad Singh.[99] Ray, having been involved in the bankruptcies of Enron, Residential Capital, Nortel and Overseas Shipholding, stated, "Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented."[100][101] Speaking to the House Committee on Financial Services, he testified that "literally, there’s no record-keeping whatsoever" and that the company used for its accounting needs QuickBooks, a small-business accounting tool, despite handling "billions of dollars."[102]
Widening impact and contagion fears
The exchange token of Crypto.com, Cronos, lost approximately $1 billion in value in November,[103] a decline attributed in part due to the collapse of FTX and in part due to reporting that Crypto.com had accidentally sent $400 million of Ether to another exchange.[49][50] On November 14, Crypto.com's CEO assured users that the exchange was functioning as normal.[103] Commenters and customers remained fearful that Crypto.com could experience a collapse similar to FTX.[104]
BlockFi, a cryptocurrency lender, was reportedly taking steps to file for bankruptcy as of November 15.[105] The firm had earlier begun preventing withdrawals.[105] The company disclosed "significant exposure" to FTX on November 14.[105] Another cryptocurrency lender, Genesis, a subsidiary of Digital Currency Group, halted withdrawals on November 16.[106] This halt caused Gemini, an exchange owned by the Winklevoss twins, to cease allowing redemptions for clients using a service provided through a partnership with Genesis.[107] Another Digital Currency Group subsidiary, Grayscale, saw the value of its flagship offering, the publicly traded Grayscale Bitcoin Trust, decline by 20% over the two weeks preceding November 17.[108] Grayscale Bitcoin Trust was trading at a discounted price, 42% below the value of its Bitcoin, as of November 14.[109]
Concerns have also been raised about Silvergate Bank, as FTX was a depositor and could have also been a source of credit exposure. Silvergate has said that it has ample liquidity and no loan exposure to FTX. These concerns have been magnified due to Silvergate's key role as a gateway between its cryptocurrency clients and the wider financial world.[110][111]
Responses and effects
Effects on investors
Institutional investors that stand to lose money due to their stakes in FTX include Tiger Global Management, the Ontario Teachers' Pension Plan, SoftBank Group, BlackRock, Lightspeed Venture Partners, Temasek, and Sequoia Capital.[112][113][114][115][116] Sequoia Capital wrote down its equity in FTX to $0 on November 9, losing some $214 million.[117] Sequoia released a notice to investors, also published on Twitter, assuring them the firm's stake in FTX represented a small amount of its overall portfolio,[118] and replaced a profile of Bankman-Fried published on the firm's website with a link to the same notice.[119][120][121] The Ontario Teachers' Pension Plan released a similar statement.[122] Temasek later wrote down its investment on November 16.[123] Several public figures also invested in FTX or received compensation for promoting the company.[124] These include football player Tom Brady, basketball players Shaquille O’Neal and Stephen Curry, model Gisele Bundchen, and businessman Kevin O’Leary.[124]
Gisele Bündchen was also appointed the ESG advisor for the cryptocurrency platform. After its bankruptcy, investors sued her for her involvement and accused her of participating in FTX’s alleged scheme to take advantage of unsophisticated investors.[125]
Anthony Scaramucci, founder of SkyBridge Capital, announced the firm was attempting to buy back a 30% stake in the business owned by FTX.[126]
Effects on other cryptocurrency firms and cryptocurrency markets
Cryptocurrency investment firms with assets still held on FTX after its bankruptcy include Galois Capital and Galaxy Digital.[127]
Cryptocurrencies experienced swings and declines in value as news of FTX's collapse first emerged in early November: Tether dropped below its peg price of $1.00 to $0.97[128] and Bitcoin sank to its lowest price in two years.[15] Share prices for publicly traded cryptocurrency companies declined.[129] The price of Solana, which was affiliated with Bankman-Fried, declined as well.[130] The crisis at FTX has inspired an increase in withdrawals from other exchanges.[131] A decline in the value of Cronos, the token of exchange Crypto.com, triggered fears of the potential for a collapse similar to that of FTX and spurred withdrawals from the platform.[104] CEO Kris Marszalek provided assurances that the firm was liquid and that it did not use Cronos in a manner similar to the way FTX used FTT.[104] Bloomberg reported that the collapse of FTX exacerbated institutional skepticism of cryptocurrencies as an asset class.[132]
In December, it emerged that FTX had secretly invested in The Block, a cryptocurrency news firm, and to fund an LLC its CEO Michael McCaffrey used to buy an apartment. Its staff said they had no knowledge of the investments. McCaffrey then resigned.[133]
Responses and commentary
Investment manager and short selling specialist Jim Chanos predicted in November 2022 the collapse of FTX would lead to "increased scrutiny and regulation" over cryptocurrencies. Chanos criticized the cryptocurrency sector as "designed to extract fees from really unsuspecting investors".[134]
Richard Handler, CEO of American financial firm Jefferies Group, tweeted on November 10 that he had attempted to meet with Bankman-Fried in July and again in September, as he perceived the FTX CEO was "in over his head".[135] Handler stated that Bankman-Fried did not respond to the emails sent from Jefferies staff on Handler's behalf.[135]
The sudden collapse of FTX has been compared to the bankruptcy of Lehman Brothers in publications such as The New York Times and the Financial Times.[136][137] Lawrence Summers acknowledged the comparisons to Lehman and further compared the collapse to the Enron scandal, caused by fraud perpetrated by Enron executives.[138] Rostin Behnam, the Chairman of the Commodity Futures Trading Commission, called for Congress to grant the organization more power to regulate cryptocurrencies.[139] The financial impact of the collapse having reached beyond the immediate FTX customer base,[140] financial industry executives said at a Reuters conference that "regulators must step in to protect crypto investors."[141] Technology analyst Avivah Litan commented on the cryptocurrency ecosystem that "everything...needs to improve dramatically in terms of user experience, controls, safety, [and] customer service."[142] Risk management firm Titan Grey published a primer on the commencement and early motions practice of the FTX chapter 11 case, analyzing issues such as creditor privacy, relief from the automatic stay, proposed differential treatment of customers from other creditors, and others.[143]
Collapse
Main article: Collapse of Silicon Valley Bank
The FDIC briefly created a new bank, the Deposit Insurance National Bank of Santa Clara, for the purpose of servicing SVB's insured deposits, before replacing it with a bridge bank.
In 2022, SVB began to incur steep losses following increased interest rates and a major downturn in growth in the tech industry, with the bank heavily concentrated in long-term Treasury bonds.[66][67] As of December 31, 2022, SVB had mark-to-market accounting unrealized losses in excess of $15 billion for securities held to maturity.[66] In early March of 2023, a combination of factors – including poor risk management and a bank run driven by tech industry investors – caused the bank to collapse.[68][69] Use of social media was reported to be a factor in both the initial bank run and its aftermath, with those affected by the potential loss of deposits calling for regulators to ensure that uninsured accounts were made whole.[70][71][72][73]
Early in the morning of March 10, examiners from the Federal Reserve and the FDIC arrived at the offices of SVB to assess the company's finances.[74] Several hours later, the California Department of Financial Protection and Innovation (DFPI) issued an order taking possession of SVB,[75] citing inadequate liquidity and insolvency,[76] and appointed the FDIC as receiver.[77][78] The FDIC then established a deposit insurance national bank, the Deposit Insurance National Bank of Santa Clara, to re-open the bank's branches the following Monday and enable access to insured deposits.[18][79][80][81] The CEO of Silicon Valley Bank, Greg Becker, was previously on the board of directors at the Federal Reserve Bank of San Francisco, but exited that position.[82] An initial auction of Silicon Valley Bank assets on March 12 attracted a single bid from an undisclosed suitor,[83] after PNC Financial Services and RBC Bank backed away from making offers.[84][85] The FDIC rejected this offer and plans to hold a second auction to attract bids from major banks, now that the bank's systemic risk designation allows the FDIC to insure all deposits.[83]
On March 13, 2023, the FDIC announced via press release,[86] that the FDIC transferred SVB assets to a new bridge bank, Silicon Valley Bridge Bank, N.A., and appointed Tim Mayopoulos as CEO.[87][88] The new entity, Silicon Valley Bridge Bank, N.A., is an FDIC-operated, and all SVB clients will become customers of new bridge bank.[89] The FDIC stated the goal is to provide a new level of protection to SVB clients, including keeping regular banking hours and expected banking activities, like online banking, ATM acess to client funds, and check writing, and the FDIC stated SVB’s official checks will clear and that loan customers should continue making payments. The FDIC also added that their role is to not protect Sillicon Valley Bank shareholders and certain unsecured debt holders.[90]
Regulatory filings from December 2022 estimated that more than 85% of deposits were uninsured.[91] The failure of SVB was the largest of any bank since the 2007–2008 financial crisis by assets, and the second-largest in U.S. history behind that of Washington Mutual.[92] SVB's Chinese joint venture, whose chairman is the chairman of Shanghai Pudong Development Bank, said their operations were "sound" as of March 11, 2023.[44] The UK government announced that it was working on a lifeline for British tech firms affected by the collapse of the Bank and its branch in the United Kingdom as a part of the fallout from the parent bank.[93] 3,000 firms in the UK were believed to be at risk of bankruptcy without a rescue.[94] On March 13, 2023, after a bidding process, it was announced that HSBC UK had agreed to acquire Silicon Valley Bank UK for £1 in a rescue deal, at no cost to the taxpayer and with depositors fully protected.[95][96][97]
On March 17, 2023, Silicon Valley Bank's former parent company, SVB Financial Group, filed for Chapter 11 bankruptcy. The bankruptcy did not include its remaining subsidiaries, SVB Capital and SVB Securities. Silicon Valley Bridge Bank or SVB Private is also not part of the bankruptcy filing as they are no longer affiliated with SVB Financial Group.[98][99]
On March 26, 2023, the FDIC announced that First Citizens BancShares will acquire the commercial banking business of SVB.[4][5] As part of the deal, First Citizens will buy around $119 billion in deposits and $72 billion of SVB's loans discounted by $16.5 billion, while around $90 billion of SVB's securities will continue to remain in receivership.[100] SVB's 17 branches will reopen under the First Citizens brand the next day, with all SVB depositors becoming depositors of First Citizens.[5]
Collapse
Main article: Acquisition of Credit Suisse by UBS
Credit Suisse stock price
On 15 March 2023, Credit Suisse' share price dropped nearly 25 percent after Saudi National Bank, its largest investor, said it could not provide more financial assistance.[84] The market price of the bank's unsecured bonds set for maturity in 2027 dropped to a low of 33 percent of their par value on that day, down from being valued at 90 percent of their par value at the beginning of the month.[85][86]
Later in the same week, Credit Suisse sought to shore up their finances by taking a loan of 50 billion Swiss francs from the Swiss National Bank (SNB);[87][88] the bank later proceeded to buy three billion Swiss francs of its own debt and to put the Baur en Ville hotel in Zürich for sale.[89] However, this intervention did not stop investors and customers from pulling their money out of Credit Suisse, with outflows topping 10 billion Swiss francs during the week.[90][91] The situation was so compromised that the SNB and the Swiss government started discussions to fast-track the bank's acquisition by UBS.[92][93][94][95] On 19 March 2023, UBS announced a deal had been reached to acquire Credit Suisse for US$3.25 billion (CHF 3 billion) in an all-stock deal.[96].
You might want to ask yourself a few things:
1) Do you really think everything is as "okay" as it is being portrayed?
2) If everything is as "okay" as we are being told?
Then why couldn't anybody see any of the above coming?
(Thx Peter Schiff)
3) Do you really think any of it is going to stop?
(All The Fed did was just buy some time but nobody knows how much...)
Might wanna think about that for a minute...
Or not :-).
No comments:
Post a Comment