The truth behind Signature Bank's failure and Full-RBF (finally!)

For today’s takes: another damning investigation from Nic Carter for Pirate Wires on the hidden truths of Operation Chokepoint 2.0, and a long-overdue update from Bitcoin Core. Plus, Kraken’s layoffs, the size of the crypto lending market, and why your boomer father is saying “I told you so” about gold.

It’s about a 5 minute read. But before we dig in…

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Was Signature Bank killed for the sins of Silicon Valley Bank?

In his latest piece for Pirate Wires, Castle Island Ventures Partner Nic Carter makes the case again that Signature bank was fully solvent and didn’t need to go down in the 2023 tech banking crisis. Why, then, was it forced into receivership? After speaking with firsthand sources, Carter believes he’s found the answer: Signature was forced to fail so that the FDIC–read Biden administration–could invoke the “Systemic Risk Exception” to bail out Silicon Valley Bank. – link

OUR TAKE: Every time I think I’ve reached the bottom of the Chokepoint 2.0 rabbit hole, the Mad Hatter coaxes me into a new tunnel that takes the whole debacle in an even nuttier direction. 

If Carter’s account is true – and his record on OCP 2.0 has been definitive – I’m struggling to find a precedent for such a feckless, inane, and unjustified intervention.  As Carter put it in his piece, "Signature died for the sins of SVB.”

According to Carter’s account, Nancy Pelosi – crypto’s premiere bete noir in The Swamp – implored the White House to backstop SVB clients. There’s a few good guesses why Pelosi did so as well, mostly involving her husband’s SVB banked business. Regardless, the FDIC needed a fall guy to create the illusion that SVB’s crisis was spreading, to create a pretext for justified intervention. And it found a convenient scapegoat in the crypto-focused Signature Bank. If you wanted to manufacture an insolvency, then a bank dedicated to crypto–which suffered a tremendous drawdown the year before–is perhaps an easy place to start. After all, who cares about crypto bros losing money?

Well, they care, actually, and this episode of financial despotism would propel the industry to throw its weight behind Donald Trump in the 2024 election. 

Newest version of Bitcoin Core cements “full-rbf”

After almost a decade of debate and advocacy for “full-rbf,” Bitcoin Core added the default setting to “1".” The latest update of Bitcoin Core (29.0) removes the option to alter the value after “widespread adoptino of this policy” – link

Explained in layman’s terms: When a transaction is sent out into the Bitcoin network but then another transaction (signed by the same private key) is sent that spends those same UTXOs, it is possible for a miner to include or “replace” the new transaction with the previous one and include a higher transaction fee.

Due to each transaction requiring the same UTXOs, only one of them can be valid – otherwise it would create a double-spend. This used to be opt-in by Bitcoin core users that signed transactions stating that they acknowledged whether the transaction could be replaced or not and then other Bitcoin Core nodes which have -mempoolfullrbf=0 would not relay those transactions. Thus, it typically required a mining pool to be watching for those transactions that are “replaced-by-fee” or have a way for users to submit transactions directly to the pool. Over the past couple of years, most mining pools started adopting full-replace-by-fee (full-RBF) as the competition for ordinals heated up. Now virtually all mining pools recognize full-RBF.

OUR TAKE: It’s about damn time. 

It never really made sense from a Bitcoin first principles standpoint to arbitrarily hamstring the ability of block producers to include valid transactions because of a courtesy and carryover from before the blocksize war. Whether or not -mempoolfullrbf was on or not was meaningless from Bitcoin’s perspective – a valid transaction is a valid transaction, and it was simply customary to formalize it by Bitcoin clients.

Yes, as with many things, this does go back to the Blocksize War and the Bitcoin Cash chainsplit. Bitcoin made the commitment to scale through blocksize increases which means not necessarily including every transaction in every block. This means that, in order to account for block reorganizations and transactions sitting in the mempool for sustained periods of time, the Bitcoin chain could not commit to zero-confirmation (0-conf) transactions. This occurs when nodes see a transaction and consider it valid even though miners haven’t included it in a block yet.

Therefore, the full-RBF camps and 0-conf camps have always been diametrically opposed to each other as they represent two different views for how Bitcoin should operate. Bcashers went the 0-conf route and then it took another 8 years plus some market adoption for full-RBF to be enshrined in the dominant Bitcoin reference client, Bitcoin Core.

Overall this hasn’t impacted the user hardly at all and is just a weird peculiarity of Bitcoin after the Blocksize War, but Full-RBF advocates like Peter Todd can finally claim victory.

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Kraken lays off ‘hundreds’ as it eyes an IPO

The new layoffs follow the exchange’s 15% haircut in staff last October. ““hey're culling aggressively across all functions, and it's a constant and ongoing thing. It’s about improving Kraken’s EBITA,” a source told CoinDesk. Bloomberg reported back in March that the company was probing a $200 million to $1 billion debt deal in anticipation of an IPO. — link

Crypto casino founder arrested after gambling away investor funds

Richard Kim of crypto casino Zero Edge was arrested Tuesday for gambling away $7 million in investor funds. The exchange never launched, but marketed itself as a casino that would level the playing field with improved transparency, per CoinDesk – link

Gold surges this week on China economic data

Gold is up about 3.66% on the week as of Thursday evening on multiple news events including the Fed Chair Jerome Powell’s warnings about tariffs & China’s surprisingly positive economic data. Accompanying the gold surge are price target raises like $3,500/oz from Citi. – link