Silvergate Bank Announces Closing, What Happens to MacroStrategy’s $250M Loan?

Silvergate Bank Announces Closing, What Happens to MacroStrategy’s $250M Loan?


2023-05-20 10:48:47

Market situation

After the testimony of the Fed chair in the Senate, US stocks on March 8 were better in the two indexes of S&P 500 and Nasdaq, while Dow Jones still fell slightly. Stock futures continue to fall. Gold price fell to 1816 USD/ounce. Oil is flat around 76 USD/barrel.

The supply of Bitcoin price continued to fall to $21,600. The majority of altcoins in the market are down slightly and cap around $1041 billion.

Silvergate announces closure

The crypto market has received information from Silvergate Capital, a lender at the heart of the crypto industry, that it is shutting down and liquidating its bank. All customer deposits will be refunded in full, according to the liquidation scheme shared on Wednesday.

The company did not say how it plans to deal with claims against its business. Centerview Partners will act as financial advisors to Silvergate and Cravath, Swaine & Moore will provide legal services.

To come to this closure, Silvergate suffered a loss of more than $1 billion because their major customer, FTX, collapsed. Cryptocurrency companies like Coinbase and Galaxy Digital have raced to cut ties with Silvergate.

MacroStrategy borrows $205 million from Silvergate

Silvergate was once one of the two main banks for crypto companies, along with New York-based Signature Bank. Silvergate has just over $11 billion in assets, much less than the more than $114 billion at Signature Bank.

One of Silvergate’s customers is MacroStrategy, a subsidiary of MicroStrategy. In March of 2022, the company MacroStrategy took out a loan from Silvergate bank for $205 million as collateral in BTC. An interest-only term loan secured by a certain number of bitcoins is held in a MacroStrategy collateral account with a mutually authorized custodian by Silvergate and MacroStrategy.

Silvergate announced the closure but the loan is still irrevocable sooner. Because the loan term and terms have been agreed in advance, MacroStrategy can simply pay when it is due.

The majority of MicroStrategy’s debt will come due in 2025, a year after the halving event. It is possible that Michael Saylor believes that the price of BTC will grow similar to previous history so he is very confident in his loan. Thuan thinks that, at some point, MicroStrategy will sell (partially or completely) its Bitcoins to take profits and pay off loans to buy BTC before.

Salary report better than expected

Payroll services firm ADP reported on Wednesday that companies added jobs at a breakneck pace in February as the US labor market continued to be buoyant. Private payrolls rose 242,000 for the month, well ahead of Dow Jones estimates of 205,000. This is also much higher than the increase of 119,000 jobs in January 2023.

Wage growth eased slightly, with people remaining in their jobs up 7.2% year-on-year, down 0.1% from a month ago. Those changing jobs saw 14.3% growth, down from 14.9% in January.

The CNBC host also pointed out that unemployment numbers published by the labor department in the past months are often better than those reported by ADP. So this may repeat in the next February unemployment report. That means the market can get better jobless announcements. Coupled with the Fed’s statement on Tuesday, the market is worried that the Fed will continue to raise interest rates higher than expected.

US government sells BTC from Silk Road

Silk Road is an online black market and the first modern darknet market. It was launched in 2011 by American founder Ross Ulbricht under the pseudonym “Dread Pirate Roberts”. This marketplace was one of the first to accept payments in Bitcoin, helping to popularize the use of cryptocurrency. US law enforcement agencies have taken down the website and confiscated many facets as well as BTC. After this, the government agency gradually sells the BTC usually through auction of the acquired BTC.

Recently, on-chain data shows that the amount of BTC held by government agencies shows signs of moving. Over 50,000 Bitcoins worth $1 billion, were moved from multiple wallets linked to US Government law enforcement arrests and moved to new addresses, with some going to Coinbase on March 8.

According to data shared by online analytics firm PeckShield, three transfers were made from US law enforcement wallets. These wallets contain nearly 51,000 BTC seized by US authorities from the Silk Road marketplace in November 2021. The seized BTC was consolidated into two wallet addresses.

Of these three transfers, the majority appear to be internal transfers. However, around 9,861 BTC were sent to Coinbase. The other two include a 30,000 BTC transfer and a 9,000 BTC transfer. Many fear these agencies could sell BTC on Coinbase which could affect the price of BTC. However, we have just seen the number of more than 9000 BTC sent to Coinbase so it is not a cause for concern.

The Fed chairman has said that interest rates will rise higher than expected. This was repeated in a House hearing on Tuesday. These statements made investors more nervous. The majority of investors switched from thinking the Fed would raise 0.25% to a 0.5% rate hike at the March meeting, according to Fed futures. The Fed’s priority is still to beat inflation at any cost.

Fed Chairman at House hearings

Besides information about interest rates, inflation, unemployment, etc., the topic of crypto and CBDC continues to be mentioned. There are three main points about crypto that are discussed.

First, the Fed said that the date when the United States will issue a CBDC is still a long way off, and that Congress must pass the law before it can be issued. The Fed cannot issue CBDCs on its own. In addition, the Fed thinks that with a CBDC, the stablecoin will continue to function because its value is based on USD. But other cryptos will go to zero. But Thuan thinks the opposite, stablecoins are the thing to worry about when there is a CBDC.

Finally, about decentralized blockchain, the question remains, the Fed supports the regulatory framework and does not want to hinder innovation. The regulatory framework is the task of Congress, the Fed has no authority and cannot make laws on the crypto market.

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