Cathie Wood: regulators missed ‘looming crisis’
The tech investor argued that problems in traditional banking ended up hurting cryptocurrencies like stablecoins, rather than the other way around. Marco Bello—Getty Images
Cathie Wood, the head of ARK Investment Management, believes regulators missed problems at banks like Silicon Valley Bank because they were too focused on cryptocurrencies.
US regulators have been keeping a close eye on the cryptocurrency sector in recent months, warning banks against offering services to the industry and arguing that many cryptocurrency services needed to comply with US securities regulations.
Still, on Tuesday, Wood claimed on Twitter that the cryptocurrency sector was holding its own amid the crisis. “While the U.S. banking system clamped down in response to bank runs that threatened regional banks, Bitcoin, Ethereum and other crypto networks didn’t skip a beat,” Wood tweeted.
“Regulators should have been focused on the centralized and opaque points of failure that threaten the traditional banking system” rather than on decentralized finance and cryptocurrencies, Wood argued. “They should have over the entire crisis as looming in view: assets and liabilities duration mismatch,” she continued.
US regulators seized Silicon Valley Bank on Friday, following the biggest collapse of a US bank since 2008. SVB was the subject of a bank run after it admitted selling assets at a loss to cover a surge in customer withdrawals, which spooked customers.
On Sunday, the Federal Reserve said it would cover SVB’s deposits in full, even beyond US deposit insurance limits. The central bank also launched a new lending program to help banks avoid the need to sell securities at a loss to raise liquidity. Regional bank shares rallied on Tuesday after dramatic losses forced some trading halts on Monday.
Wood alleged that traditional banking harmed cryptocurrencies, rather than the other way around, and argued that the recent crisis knew that “instability in the banking system threatened stablecoins, the ramps of DeFi, in stark contrast to the regulator’s rhetoric.” Stablecoins are cryptocurrencies pegged to a specific currency, usually the US dollar.
On Friday, Circle, the backer of USDC, a major stablecoin pegged to the US dollar, said $3.3 billion of its reserves were tied up in Silicon Valley Bank. The stablecoin briefly lost its peg against the dollar, falling to around 90 cents at times.
The USDC has since regained parity with the dollar. Circle announced Sunday night, after the Federal Reserve announced it would fully protect SVB’s depositors, that it expected to have access to its accounts by Monday and that it would partner with a new bank — New Jersey-based Cross River Bank — for its commercial banking services.
Bank error
Two banks that provide services to the cryptocurrency industry have failed in the past week. Last Wednesday, California-based Silvergate Bank announced it would voluntarily wind down operations, after deposits at the bank plunged following the collapse of cryptocurrency exchange FTX in November.
Then, on Sunday, the US Federal Deposit Insurance Corporation announced that it was taking over Signature Bank of New York. The Federal Reserve announced that Signature Bank’s depositors would be protected in full, much like those of Silicon Valley Bank.
Failure of either bank could leave cryptocurrency companies with none of the 24/7 payment networks used to convert digital currencies into fiat money. As crypto companies turn to more traditional banks, the lack of 24-hour services can increase volatility outside regular business hours, such as weekends.
The failures of Silvergate and Signature Bank of New York are the latest in a series of high-profile failures in the cryptocurrency space, such as the collapse of algorithmic stablecoin TerraUSD last May, the bankruptcy of crypto lender Celsius last July, and FTX’s implosion. November last year.
The value of major cryptocurrencies has risen from pre-weekend lows. As of 15:00 Hong Kong time, Bitcoin is up 27% and Ether is up 24% from Friday’s lows. Crypto investors can bet on the banking crisis ending future interest rates from the US Federal Reserve, after tighter monetary policy helped weaken cryptocurrency values last year.
An end to rising interest rates could also be good news for Wood, whose fund on Friday saw its biggest inflow of funds since April 2021, according to Bloomberg. Ark’s investments in technology companies are sensitive to interest rate increases.
