A Timeline as Testament to Resilience
Last week, the Economic Report of the President bashed cryptocurrency assets, concluding “While the cryptocurrency assets ecosystem and its underlying technology introduce the potential for newfound efficiencies, efforts to challenge basic economic principles have frequently resulted in financial calamities.”
So, we decided to take a look at how the calamities of the last 16 months developed. Our goal was to see if Bitcoin is still a viable investment option, given the gains it had generated worldwide until last year.
Prepare yourself! This timeline shows how the crypto industry took a significant $2 trillion loss due to a mere $2 billion investment withdrawal from Terra in an environment of panic created by the U.S. government’s destabilizing actions. You’ll also understand why trillions of losses for both global investors as well as Americans, now raise concerns about the country’s regulatory practices and the role of the U.S. dollar as a global reserve currency.
Here we go!
November 2021, The Department of Justice (DOJ) confiscated 50,676 Bitcoin from James Zhong. The hacker allegedly stole this Bitcoin in 2012 from Silk Road, an underground marketplace for illegal drugs and other illicit goods. At the time, each coin was worth $10. Today, they’re worth $2.82 Billion.
January 19, 2022: The U.S Treasury reached its debt limit. Those observing noticed that they were in an emergency state.
February 24, Russia attacked Ukraine. Wars are generally reminders of unpredictability and “bad things to come”. They create pollution and resource shortages that impact the whole world. This one kicked off historic policy actions and moves across global markets as well. Putin’s war against Ukraine also slowed growth, added to the loss of energy in the markets and increased inflation.
March 17, 2022: FED raised rates +25 points. This led to decreased strength in stock markets and increased focus on “bad things to come”.
May 7, 2022: Terra collapsed. $2bn of Terra’s UST stablecoin was “unstaked” by a consumer and immediately sold, causing it to unpeg and drop to $0.91. A panic sell-off ensued.
May 14, 2022: Luna Token collapsed. After Terra’s fall, Luna, which was connected to Terra algorithmically, lost its value from $82.55 to $0.000001 per token in one week. The Terra and Luna’s fall eliminated $18bn of value in the cryptocurrency sector.
June 12, 2022: Crypto-lender Celsius collapsed. CEO of Celcius Alex Mashinsky announced that the company was pausing client withdrawals. This sparked market volatility and widespread speculation about contagion spreading from Terra’s UST stablecoin collapse.
July 1, 2022: 3AC collapsed. A prominent holder of crypto assets was the Singapore based crypto-hedge fund Three Arrows Capital (3AC). Because of smart contract staking agreements, 3AC could not sell large portions of the Luna that they held and were forced to incur up to a 99% loss on their investment.
July 5, 2022: Voyager Digital (VYGVQ) collapsed. A cryptocurrency brokerage and lender publicly listed on the Toronto Stock Exchange had given Singapore-based hedge fund 3AC loans which it used for cross-bets across the entire crypto sector. Before its collapse Voyager Digital had 3.5 million customers and around $5.9 billion in assets.
July 13, 2022: Celsius filed for bankruptcy. It was unable to repay 600,000 customers $4.7 billion.
July, 2022: Block-Fi went into deep financial struggles. It required financial support as a major lender for 3AC, along with several other of its customers who defaulted on loans through bankruptcy. FTX offered financial support with a $400m revolving credit facility with an option to buy it for up to $240m.
September 15, 2022: Ethereum became proof of stake. Ethereum (ETH-USD) blockchain ‘merged’ to become a low-energy proof of stake blockchain.
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October, 2022: Government shutdown. On January 19, 2023 Treasury reached its debt ceiling and started an emergency state to allow for the economy to continue functioning. The Congress continued not to allow the debt ceiling to be increased. Finally, the government shut down. People started wondering if they’d get their social security money, government employees started wondering about their jobs. The rampant loss of confidence in the US Treasury caused a decrease in stock prices, stock price volatility increased; credit risk spreads and mortgage spreads deteriorated.
November 2, 2022: Alameda Research under fire. Coindesk journalist Ian Allison blew the lid on the irregularities in Alameda Research’s balance sheet. Allison said a large proportion of the $14.6bn in assets held by Alameda Research, trading arm of FTX, was in FTX’s own FTT (FTT-USD) token.
November 17, 2022: FTX filed for bankruptcy. Alameda Research filed for bankruptcy on Nov. 11, followed by FTX, a week later.
November 27, 2022: BlockFi filed for bankruptcy. With major customers like Alameda Research defaulting, and no support from FTX, BlockFi filed for bankruptcy and subsequently stated it would sue Sam Bankman-Fried’s holding company after suffering a “liquidity crisis due to FTX exposure”.
[December, January, February: The Crises takes a Christmas and New Year break! Happy Holidays!]
March 10, 2023: Silicon Valley Bank announced their financial struggles. After a difficult year of FED interest rate hikes, some Silicon Valley Bank clients withdrew funds, straining the bank’s finances. To meet its depositors’ liquidity needs, SVB sold over $21 billion in securities, borrowed $15 billion, and planned an emergency stock sale for $2.25 billion. However, this announcement, combined with investor warnings, sparked a bank run as customers withdrew $42 billion by the next day.
March 12, 2023: Signature Bank is inundated with terrified customers trying to withdraw their money. On Friday, Signature Bank customers, spooked by the announcement of Silicon Valley Bank, withdrew more than $10 billion in deposits. Regulators announced late Sunday that Signature was being taken over to protect its depositors and the stability of the U.S. financial system. The sudden move shocked executives of Signature Bank, a New York-based institution with deep ties to the real estate and legal industries, said board member and former U.S. Rep. Barney Frank. Signature had 40 branches, assets of $110.36 billion and deposits of $88.59 billion at the end of 2022. It became the third largest bank in US history to file bankruptcy. Its ownership was given to FDIC and Signature Bridge Bank was formed by April 1st.
March 14, 2023: The U.S. government sold off $215,738,154 of Bitcoin. The crypto was confiscated in 2021 from James Zhong who stole the Bitcoins from an illegal drug/black money market called “Silk Road”. The black market was closed later. At the time of the event, each coin was worth about $10.
March 17, 2023: Silicon Valley Bank filed for bankruptcy. It was heavily invested in the U.S. Treasury bonds that lost value due to FED’s rate hikes and the debt ceiling crisis in the government, filed for bankruptcy. At the time it was the 16th largest bank in the USA and had around $209 billion in assets and $175 billion in deposits as of Dec. 31, 2022. Customers had attempted to withdraw $42 billion by the time the bank closed for business the evening before federal regulators shut it down. It was the second largest bank bankruptcy in US history. Ownership of both SVB and Signature was given to FDIC.
March 20, 2023: Economic Report of the President came out rejecting crypto assets. It said “Crypto assets to date do not appear to offer investments with any fundamental value, nor do they act as an effective alternative to fiat money.”
Analysis Break: Bitcoin Prices During March 2023
March 23, 2023: Hindenburg Research alleged CashApp was abused by criminals and parent company Block neglected to respond to abusive actions of its users. Hindenburg, a short-seller research company formed in 2017, released a lengthy research report alleging in part that the Cash App payments tool created by Jack Dorsey’s Block (SQ), formerly Square, has been rampantly abused by criminals, and that Block hasn’t taken sufficient steps to halt that activity. They have not formalized these criminal allegations with a lawsuit, however, their report is highlighted in news media around the globe.
March 27, 2023: The U.S. Commodity Futures Trading Commission (CFTC) sued Binance. A major Bitcoin gateway, Binance was sued by CFTC with the claim that they had been running an illegal exchange and fake compliance program since 2019. The delay by CFTC in identifying and correcting the situation before this major punitive action is concerning. The lawsuit prompted a panic among Binance’s U.S. customers, resulting in a sell-off of $1.6 billion… With $852 million withdrawn in a single day, an amount that could have bankrupted many institutions.
The loss, just in the crypto sector, was more than $2 Trillion until the events of March. This does not include the losses in real estate, traditional finance establishments, social security and other components of the U.S . monetary system.
With the CFTC lawsuit against Binance, questions arise about the U.S. government’s motives. Is it concerned about being replaced by Bitcoin, or does it simply disregard the losses suffered by those who invest in cryptocurrency? One thing is clear: the government’s actions have contributed significantly to global investment losses, and people deserve an explanation for why cryptocurrency companies are not receiving the same bailout treatment as big banks did in the 2008 crisis.
