June 14, 2024

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The closure of three major crypto-friendly banks in the US, Signature Bank, Silicon Valley Bank, and Silvergate Bank, has sent shockwaves across the digital asset industry. According to some in the crypto community, this could pose a significant challenge for crypto companies in 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 only days after the closure of Silicon Valley Bank, which was ordered to shut down on March 10. A week prior, 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 Dec. 31, according to insurance documents. The Silvergate Exchange Network (SEN) and Signature Bank’s “Signet” were real-time payment platforms that allowed commercial crypto clients to make real-time payments in dollars at any time. Their loss could mean that “crypto liquidity could be somewhat impaired,” according to comments from Nic Carter of Castle Island Ventures in a March 12 CNBC report. He said that both Signet and SEN were key for firms to get fiat in but hoped that other banks would step up to fill the void.

Crypto investor Scott Melker, also known as The Wolf Of All Streets, believes that the collapse of the three banks will leave crypto companies “basically” without banking options. “Silvergate, Silicon Valley, and Signature all shuttered. Depositors will be made whole, but there’s basically nobody left to bank crypto companies in the US,” he said.

Meltem Demirors, chief strategy officer of digital asset manager Coinshares, shared similar concerns on Twitter, highlighting that in just one week, “crypto in America has been unbanked.” She noted that SEN and Signet “are the most challenging to replace.”

However, some in the industry believe that the closure of the three firms will create room for another bank to step up and fill the vacuum. Jake Chervinsky, head of policy at crypto policy promoter the Blockchain Association, said the closure of the banks would create a “huge gap” in the market for crypto-friendly banking. “There are many banks that can seize this opportunity without taking on the same risks as these three. The question is if banking regulators will try to stand in the way,” he added.

Meanwhile, others have suggested that there are already viable alternatives out there. Mike Bucella, General Partner at BlockTower Capital, told CNBC many in the industry are already changing to Mercury Bank and Axos Bank. “Near-term, crypto banking in North America is a tough place,” he said. “However, there is a long tail of challenger banks that may take up that slack.”

Ryan Selkis, CEO of blockchain research firm Messari, noted that the incidents have seen “Crypto’s banking rails” shuttered in less than a week, with a warning of the future for USDC. “Next up, USDC. The message from DC is clear: crypto is not welcome here,” he said. “The entire industry should be fighting like hell to protect and promote USDC from here on out. It’s the last stand for crypto 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 wires initiated to move its balances at Silicon Valley Bank had not yet been processed, leaving $3.3 billion of its $40 billion USDC reserves at SV. The news prompted USDC to waver against its peg, dropping below 90 cents at times on major exchanges.

However, as of March 13, USDC was climbing back to its $1 peg following confirmation from CEO Jeremy Allaire that its reserves are safe and the firm has new banking partners lined up. Despite the 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-friendly 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 may step in to prevent other banks from taking on the risks associated with serving crypto companies.

However, others argue that regulators should not stand in the way of innovation and that banks should be allowed to serve 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 companies to have robust risk management strategies in place. As the industry continues to grow, it will face increasing regulatory scrutiny, and companies will need to be prepared to navigate these challenges.

In conclusion, the closure of three major crypto-friendly banks in the US has raised concerns about the future of digital assets in the country. While some in the industry believe that it could create room for another bank to step up and fill the vacuum, others are concerned that it may leave crypto companies without banking options. The recent challenges faced by 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 and believe that they will play a vital role in the global economy.

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