The closure of three major crypto banks in the US, Signature Bank, Silicon Valley Bank, and Silvergate Bank, has shocked the entire digital asset industry. According to some members of the crypto community, this could present a significant challenge for crypto companies when it comes to accessing traditional banking partners.
On March 12, the Federal Reserve announced the closure of Signature Bank, citing “systemic risk” as the reason for the bank’s closure. It came just days after the closure of Silicon Valley Bank, which was ordered closed on March 10. A week earlier, Silvergate Bank, another crypto-friendly bank, announced that it would close its doors and voluntarily liquidate on March 8.
At least two of these banks were seen as important banking pillars for the crypto industry. Signature Bank had $88.6 billion in deposits as of December 31, according to insurance documents. Silvergate Exchange Network (SEN) and Signature Bank’s “Signet” were real-time payment platforms that allowed commercial crypto customers to make real-time dollar payments at any time. His loss could mean that “crypto liquidity could take a bit of a hit,” according to comments from Castle Island Ventures’ Nic Carter in a March 12 CNBC report. He said both Signet and SEN were key for companies to raise fiat money, but he hoped other banks would take steps to fill the gap.
Cryptocurrency investor Scott Melker, aka The Wolf of All Streets, believes that the collapse of the three banks will leave cryptocurrency companies “basically” without banking options. “Silvergate, Silicon Valley and Signature closed. Depositors will pick up, but basically no one is left to bank with cryptocurrency companies in the United States,” he said.
Meltem Demirors, chief strategist at digital asset manager Coinshares, shared similar concerns on Twitter, noting that in just one week, “Cryptocurrency in America has gone unbanked.” He noted that SEN and Signet “are the hardest to replace.”
However, some in the industry believe that the closure of the three companies will create space for another bank to step in and fill the void. Jake Chervinsky, head of policy at the Blockchain Association crypto policy advocate, said the bank closures would create a “huge gap” in the crypto-friendly banking market. “There are many banks that can take advantage of this opportunity without taking the same risks as these three. The question is whether bank regulators will try to get in the way,” he added.
Meanwhile, others have suggested that viable alternatives already exist. Mike Bucella, general partner at BlockTower Capital, told CNBC that many in the industry are already switching to Mercury Bank and Axos Bank. “Short-term crypto banking in North America is a tough place,” he said. “However, there is a long line of challenger banks that can take over.”
Ryan Selkis, CEO of blockchain research firm Messari, noted that the incidents have caused “Crypto banking rails” to shut down in less than a week, with a warning about the future of USDC. “Next, USDC. DC’s message is clear: cryptocurrencies are not welcome here,” he said. “The entire industry should be fighting like hell to protect and promote USDC from here on out. It is the last stand for cryptocurrencies in the US,” Selkis added.
USDC, which is the second largest stablecoin by market capitalization, has been hit hard by the recent bank closures. Circle, the issuer of USDC, confirmed on March 10 that transfers initiated to move its balances at Silicon Valley Bank had not yet been processed, leaving $3.3bn of its $40bn USDC in reserves in SV. The news led the USDC to falter against its peg, dipping below 90 cents at times on major exchanges.
However, as of March 13, the USDC was moving back up to its $1 peg after CEO Jeremy Allaire confirmed that its reserves are safe and that the firm has new banking partners in line. Despite recent challenges, many in the crypto community believe that stablecoins like USDC will play a vital role in the future of digital assets.
The closure of these crypto banks has raised concerns among regulators, who fear that it could lead to a loss of confidence in the banking system. Some experts believe that regulators can step in to prevent other banks from assuming the risks associated with servicing crypto businesses.
However, others argue that regulators should not get in the way of innovation and that banks should be able to cater to the needs of the crypto industry. They believe that crypto companies should be treated like any other legitimate business and that they should have access to banking services.
The recent bank closures also highlight the need for crypto businesses to have strong risk management strategies. As the industry continues to grow, it will face increasing regulatory scrutiny, and companies will need to be prepared to meet these challenges.
In conclusion, the closure of three major crypto banks in the US has raised concerns about the future of digital assets in the country. While some in the industry believe it could create space for another bank to step up and fill the void, others worry it could leave cryptocurrency companies without banking options. Recent challenges facing stablecoins like USDC also highlight the need for robust risk management strategies in the digital asset industry. Despite the challenges, many in the crypto community remain optimistic about the future of digital assets, believing that they will play a vital role in the global economy.
