Matt Levine: Silverbank Had A Crypto Bank Run

Investment Analysis Clubs Destiny Solutions Corporation
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https://archive.ph/qkX2r

The basic function of crypto is that you can buy cryptocurrencies with dollars and sell cryptocurrencies for dollars. I suppose there are other functions? But the main thing is that if you think Bitcoin will go up, you spend some dollars to buy some Bitcoin, and then if it goes up (or doesn’t), you sell it for dollars.

If you like crypto a lot — or if you are an institutional-ish crypto trader — you will do this a lot, and you may find yourself frustrated with the dollar side of things. Crypto trades globally, 24 hours a day, seven days a week; you can use smart contracts to send crypto automatically, and sending crypto is generally a permissionless lightly-regulated activity. But if you want to buy crypto with dollars, you need to use the US dollar financial system, which can feel clunky to you, a crypto native. You will probably have to send a bank transfer, but the banks are not open 24/7, and some of them might raise annoying questions if you try to transfer money from your bank account to buy crypto.

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There are solutions. One solution is that you take your dollars, you deposit them at a big trustworthy crypto exchange, and then you use the dollars in your exchange account to buy and sell crypto. The exchange holds a bunch of dollars and a bunch of crypto for its customers, and when you buy crypto the exchange deducts some dollars from your account and adds some crypto to your account, and vice versa when you sell. There are problems with this solution. The biggest is of course that sometimes the big trustworthy crypto exchanges aren’t, and they lose or steal your dollars. But another issue is that, when you deposit your dollars at the exchange, it needs to deposit them somewhere. It needs to keep customer dollars at some crypto-friendly bank that will give them back on demand.

Another solution is stablecoins: Instead of keeping your dollars at a bank, you turn them into crypto dollars by buying stablecoins that are meant to always be worth a dollar, and then instead of buying and selling crypto with dollars you buy and sell crypto with dollar-denominated stablecoins. But here too you have to trust the stablecoin issuer, which is not always a great idea. (Other stablecoins are algorithmic and that’s also risky.) And the stablecoin issuer needs to put the money somewhere, so again there is a need for a crypto-friendly bank.

Another solution is bank fraud, but don’t do that.

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Or you can invest through Fidelity.

Andy

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Andy, one of the benefits of trading with Fidelity is that un-used capital is now earning (I want to say) about 4.20% in the money market account.

The interest is paid monthly, just like the dividends paid monthly in my core 8 dividend ETFs:

Monthly dividend payers:

$DIV
$SDIV
$KBWD
$PGX
$DHS
$JEPI
$QYLD
$SPHD

I’ve got two other core dividend holdings for my LTBH port which I add to weekly: $AMLP (mid-stream oil/gas ETF) and $CWH (Camping World is led by Marcus Lemonis, a man who has his own CNBC TV show where he flies around the USA and helps saves small mom and pop businesses.)

The compounding of the compounding is magical when it comes every month (again 8 ETFs).

For instance, the covered call ETF (QYLD) is doing well as the US markets grind back to an uptrend. $QYLD is how I come to own some $TSLA. (I also have another ETF with Tesla holdings) and I have no problem going long/short Tesla as it’s a great stock for intraday trades when Musk’s mouth is in overdrive on Twitter.
Check out the dividend yield on $QYLD. That is not a misprint.

I’ve only been in $QYLD and $JEPI for four months. The other six I bought last June and I’ve added to them every week without looking at any charts. The monthly compounding amount goes into an Excel sheet and the exponential growth and weekly dollar add mean more dividend $$$ exponential growth to view end of every month. (See Dr. Jeremy Siegel’s “Stocks for the Long Run” for his example of $IBM vs. $X over about a 40-year stretch (might have been a bit longer or shorter) and how the sleep oil giant with steady dividends beat what was once the blue-chip tech name of the world.)

So, if Cancer checks me out of the Hotel Florida Keys and it’s just my wife and cat, they will abide.

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I love Matt Levine because he can take the most complicated story and give you synopsis like this:

  1. Silvergate had tons of crypto deposits: $13.2 billion of deposits at the end of September, most of them not paying interest.

  2. Then crypto melted down and crypto investors took their money back from exchanges, which in turn took it back from Silvergate. By the end of December, noninterest bearing deposits were down from $12 billion to just $3.9 billion.

  3. 3.Silvergate needed to come up with about $8 billion of cash to pay out these withdrawals.

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Famed short, Marc Cohodes, fills in more of the Silverbank story. I wish I had seen and heard the podcast a few months ago where he was already calling out the Silvergate fraud.

He goes after CNBC, Barron’s, Twitter, Bill Miller and Zero Hedge for running cover for the Silvergate fraud.

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Silvergate has other troubles as well. It’s under investigation by the U.S. Department of Justice; it’s being sued by multiple plaintiffs seeking class action status; and Reuters reported in February that another crypto exchange kingpin, Binance CEO Changpeng Zhao, had suspiciously moved $400 million at Silvergate Bank.

Eight months ago Wall Street On Parade warned our fellow Americans to Brace Yourself for Federally-Insured Bank Failures Caused by Crypto. In that article we explained how federal regulators were twiddling their thumbs as more and more federally-insured banks in the U.S. moved into crypto. We also explained that crypto is a completely discredited “innovation,” writing that:

> “…Warren Buffet has called the largest cryptocurrency, Bitcoin, ‘rat poison squared’; global economist, Nouriel Roubini, told the Senate Banking Committee in 2018 that ‘Crypto is the Mother of All Scams and (Now Busted) Bubbles While Blockchain Is The Most Over-Hyped Technology Ever, No Better than a Spreadsheet/Database.’ More recently, Bill Gates, co-founder of Microsoft, one of the most valuable tech companies in the world, stated that cryptocurrencies are ‘100% based on greater fool theory.’ And just this past June 1, more than 1,600 scientists and software engineers wrote to Committee chairs in Congress to warn that both crypto and blockchain are shams.”

The only remaining question is how long Americans are going to tolerate this madness within our financial system.

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That article statement is true. They are just relying on faith that the price of bitcoin is reasonable.

Where I get in trouble with people is when I say it’s the same thing with fiat currencies like the US dollar…take your pick of fiat currencies.

Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.

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**I would love to see the CEO with his crucifix hanging on his wall for his TV interviews would just come out and say, “Hi, I sold my soul to make some gold and now I must sell myself. Any buyers?”

But that won’t happen with this bankster.**

:pushpin: SVB Financial, parent of Silicon Valley Bank, is in talks to sell itself, sources told CNBC’s David Faber.

:pushpin: Attempts by the bank to raise capital have failed, the sources said.

:pushpin: Large financial institutions are taking a look at a potential purchase of SVB.

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Matt being Matt yesterday, breaking down the complex. He’s off today. Anyway, he drilled down further into his boffo OP piece and has taken time to rewrite some of his thoughts into even more concise textbook illustrations for the mind:

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Crypto Bank Had a Boring Collapse

Also Silicon Valley Bank, WWE betting, Bed Bath & Beyond funding, 3NC1 bonds and Fund Manager of the Year runners-up.

By

Matt Levine

March 9, 2023 at 2:22 PM EST

Silvergate

You can, with hindsight, do some dumb math about Silvergate Capital Corp., the crypto-friendly bank that melted this month. At the end of September, various crypto companies had about $12 billion of deposits at Silvergate. 1 Silvergate’s interest expense on those deposits was $0.00 per year: Those were non-interest-bearing demand deposits; crypto firms kept their money at Silvergate for transactional and convenience reasons, not to earn interest, and they didn’t. 2 (We talked last week about Silvergate, and its Silvergate Exchange Network for crypto transactions.) Silvergate did have some other expenses; its noninterest expense (salaries, rent, etc.) for 2022 totaled about $123 million.

In late September 2022, one-month Treasury bills were yielding more than 2.5%. The dumb math is, you take the $12 billion of deposits, you buy $12 billion of bills, and you get paid $300 million a year in interest. You pay your $123 million of non-interest expense, your $0 of interest expense, you have like $177 million left over as profit. Your assets are super-safe and super-liquid; if any depositors ever want their money back you just sell a Treasury bill and give it to them. This is an easy life.

This is not in fact what Silvergate did. It put its money into stuff — real estate loans, muni bonds and mortgage-backed securities and longer-dated Treasuries — that had longer duration. And then interest rates went up, so the market value of that stuff went down. Silvergate’s actual net income for 2022 was negative $949 million, driven mostly by an $886 million realized loss on its bond portfolio, though also by a $196 million write-down of “certain developed technology assets related to running a block-chain-based payment network” that it had bought in January 2022, oops. 3

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Thread discusses the “dead money” which was kept at $SIVB

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This @WallStCynic Keubiko is referring to is Jimmy Chanos. He’s one of the five best forensic accountants I’ve followed on Twitter:

What makes this all the crazier is Tesla Super Bull, Ross Gerber, is a huge $SIVB from way back.

Sooooo, $SI and $SIVB all going down due to Marc Cohodes fine piece of forensic accounting predicted. Imagine, people had this news in hand this past Monday and it appears to few people took up Cohodes’ short thesis. Today, the bell tolls for $SIVB.

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That tweet is about Silicon Valley Bank, not Silvergate.

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We’re aware of that, Softie. This board also has a long thread from Marc Cohodes who predicted what is happening to both $SI and $SIVB.

He announced this past weekend he’s not as 100% sure about $SIVB as $SI, but the mention sure spooked minds at the big banks leaving money at a smalltime bank which won’t pay a dime of interest on billions.

Helluva story here. This will be a great Netflix documentary.

I follow Matt Levine for any news on $SI and $SIVB, and because they are so intertwined in the crypto world, we’re going to have some fun trying to keep both stories straight - although much of the activity at $SI was also apparent in $SIVB.

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Hey Peregrine great to see you back and running. I have been hearing on CNBC that SIVB had long term treasuries that they bought at an interest rate of 1.7 percent. They sold them and had a 2.1 billion loss. SO they were going to sell stock to shore up their balance sheet but here is the kicker. The bank told Thiel about what they were doing and Thiel told all his buddies to pull their money out because the bank was not solvent and caused a run on the bank. Nice hunh. The morale of the story. Don’t tell anyone what you are doing with your money. Also 83 percent of the deposits at SIVB were not insured.

Andy

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Ok… so is “Silverbank” a joke term then or something? Because nothing in that thread referred to Silvergate as far as I can tell and SIVB has no connection to crypto unless some of their depositors were involved in it and contributed to the run (which I have been looking for but haven’t yet come across).

This thread just looks like it’s conflating the two institutions, that’s all.

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Andy, I hold Peter Thiel on my Dishonor Roll. I just quit using the best browser I’ve ever used, Brave, because Peter Thiel is involved and he corrupted the sanctity of decentralization and actually is a rug puller in the token he helped fund. (p.s. I lost no money on the Brave tokens I earned by surfing news stories on Brave. Those tokens exist in a wallet and I can swap for $USD anytime.

That said, I hope Matt Levine, Cohodes, Burry, or Jimmy Chanos will have more on this part of the story concerning the loose lips of the guy who tipped off Thiel.

These Silicon Valley types are supposed to be “the smartest guys in the room.”

Who would invest in a bank holding way out there fixed securities (10 years out, and here we have inverted the 2-year treasury, and as Matt points out the bank could have made hundreds of millions yearly had they done the smart thing and bought and rotated monthly treasuries paying at much higher interest rates.

Long bonds value (mark to market) went down, the bank was forced to liquidate “long” paper at big losses. Thiel gets on the phone and I imagine he chats up the likes of the Paypal Mafia and his adoring buddies from Musk’s “All-In” Podcast sycophants. Have a big bottle of single malt out in the garden, get on the cell, and word spreads.

I truly hope dozens of these sociopaths will not get more than the $250,000 FDIC bailout. So much of their ill-gotten gains come from front-running, forced gamma squeezes, touting worthless crypto on Twitter and podcasts (and like Matt Levine, I still see a few coins which might make it out of Crypto Hell) and so on and so forth.**

One of these banks was built on Silicon Valley high flyers’ machinations in crypto.

The other in softcore loans to VCs and they also had crypto exposure (see the tie-ins via the Cohodes interview and the Levine pieces).

Both CEOs of both banks are as malfeasant in their oversight. And the knew the game was up and they did some cashing out right before this blow up (although the $SIVB CEO and CFO will tell Congress that their sales were normal, planned, sales of options. Levine looks at that excuse from 3-sides in one of his latest articles, laying it out precisely how these two could have made hundreds of millions by just investing their reserves in short term bonds they flipped over every month. Free money for the bank. And in a run, they cash out short-term bonds and much higher interest rates than when they bought, instead of vice versa with inverted long term bonds.)

But all these VC types are trying to hide their exposure to crypto projects they have taken control over and which are also dying on the vine because the sociopaths got too greedy with their banking. See the VCs can buy up a majority (51%) token out there. The could bank it at $SI. That bank would keep the tokens offchain as an asset in the bank while turning right around and swapping whatever shitecoin they are pumping on Twitter (think Musk and Doge coin) for Bitcoin - and supposedly (but no longer) can be redeemed in $USD. A funny thing happened in the “discovery” by Marc Cohodes: he realized the bank was earning 0% interest in short term securities while holding billions of investible (supposedly) assets.

But then the bottom dropped out on longterm treasuries and the CEO had locked up much of the $USD swapped for $USD from underlying swapped shitecoins, well, I could have lines around the block all day too were I to stand on a corner and yell, “Get your $1.00 bonds for .40 cents, right here, got billions worth. How much do you want?”

I luv that Silicon Valley is on fire this weekend.

I don’t know why you are playing obtuse and the aliteracy card. Of course the thread conflates two threads: two banks went down the tubes this weekend and Marc Cohodes predicted as such. Matt Levine lays all this out in his multi-subject posts on $SI and $SIVB.

If you thnk $SI and $SIVB don’t have similar problems, maybe start reading Marc and Matt from weeks and months ago. They laid out what could happen. It is happening.

Both banks have exposure to ill-gotten gains from Silicon Valley bros who control the worst crypto projects, the worst zombie companies.

Keep up now, the story is growing legs:

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Why is this so hard to understand?

Let’s hope you can handle more than two symbols this week.

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Likely because you’re communicating badly.

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The story you posted is about SIVB, but the CEO with the crucifix on the wall is the CEO of Silvergate.

I’m beginning to think it’s you who is confused by the two symbols.

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Again, for the non-multi-taskers, here is a direct link to all the other posts referencing Silverbank and Silicon Valley Bank (a name like that is just asking for trouble) and the symbols are $SI and $SIVB.

First post about Marc Cohodes can lead you to a great expletive filled interview.

https://discussion.fool.com/t/famed-short-marc-cohodes-just-2-3-months-ago-

If you haven’t watched the videos, if you haven’t read all these long-form pieces, and you still think I don’t know the difference between $SI and $SIVB, then block me, and I block you. Simple. No more time wasted.

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