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Commentaries & Views

David Lifchitz - Tellurian-ExoAlpha CIO

March 10th, 2023

For those old enough to have been in the markets in 2008, today's SVB failure wakes up bad memories... After the 2022 Terra/Luna-3AC-Celcius-Voyager-FTX debacle which reminded the oldest here about the 2000 bubble, it has been Silvergate, the "crypto bank" last week, Silicon Valley Bank (SVB) yesterday... so who's next?

The problem with banks' failures is that they are non-linear, meaning that they tend to put in motion much more than their own demise.

First of all, banks are lending to each other, and when one defaults, it creates a chain reaction of consequences of partial defaults and loan write-offs among its peers.

Then SVB was the bank of many tech start-ups, using it for their treasury. How will these companies be able to function in the immediate and near future? Their deposits are close to gone: how will they be able to pay their employees? Their providers?... Mass layoffs may come at these companies if not outright closure. All of these suddenly laid-off employees will then become at risk of defaulting themselves, etc. These are the non-linear consequences.

Today, FDIC has just stepped in so it may partially pay back SVB depositors with the sale of the bank's remaining assets to try to limit contagion... having learned its lesson from 2008 when it let Lehman fail, which triggered the chain reaction that led to Great Financial Crisis, but it remains to be seen what will happen next.

Cryptos were not immune to the news, far from it, as cryptos are and remain a "risk asset" just like other financial instruments, and suffered from the SVB closure, especially after the wind-down of Silvergate last week.

On top of that, the SEC is going after crypto exchanges, and the Biden administration just announced a 30% tax proposal on crypto miners, which doesn't help either, as the markets were already weak before that.

Bitcoin broke the $21,500 support level on the SVB news and fell straight down to sub-20k yesterday, trying to find support today just below $20k, but it wouldn't take much here to push it back to $19k and possibly $17.5k should the SVB situation exacerbates next week.

On the upside, $23k looks like the new resistance level, but it may take some time to get back there, and a breakout above $25k looks even more remote unless the FED makes a U-turn on rates, which is not in their intentions as per its president Jerome Powell's speech a couple of days ago.

So if one has already taken the heat from the last 2 days, it's a bit too late to sell here ($19.9k) at time of writing, even if a little bit more downside (towards $19k) is still possible. However, the unfolding of SVB next week and the next upcoming FED's rate decision will be key for the near term direction of the market, but until more clarity occurs, a run back toward $23k from here should be seen as an opportunity to lighten up, and a break below $19k a definitive sell signal. Only a clean break above $25k-ish should be seen as the beginning of a new bull move toward $30k.

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