Three banks failed within a week. Three are crypto-related. Silvergate and Signature preferred crypto clients. SVB’s crisis is the biggest. It was the nation’s 20th-largest bank. The FDIC took over its interests when it failed on March 10, 2023. This happened Thursday–Monday. If you don’t follow crypto Twitter or news, you may have missed it. Fortunately.
Markets calmed on Monday. The crisis continues. Industry and TradFi interactions are still uncertain. Danny Talwar, Koinly’s Head of Tax, warns the sector’s de-banking might have serious ramifications. After these collapses, crypto businesses and exchanges will seek alternate financial providers. Debanking crypto firms might damage the industry and blockchain innovation.
He added, “The setbacks following the failure and shutdown of many crypto-friendly banks like Silvergate, SVB, and Signature Bank may possibly push the sector back a decade. In the medium run, this will combine with the more crypto-native collapses from the past year, making innovation in the US very difficult.”
zkLend co-Founder and co-Project Head Brian Fu says the fallout depends on your business size. “Larger firms like exchanges would see delayed settlement times and on-off ramping. For smaller enterprises, opening a bank account for daily operations may be impossible. On Tuesday, Binance banned its British pound (GBP) on-and-off ramps for new customers from March 13. From May 22, 9 weeks later, it will effect all users. Paysafe, its sterling banking partner, has not explained. It is unclear if it is related to the American banking crisis.
Once FTX collapsed in November, Signature Bank assured customers that only a small percentage of their money was linked with the disgraced exchange. The bank sold $8–10 billion in digital assets to distance itself from bitcoin. The bank’s digital assets dropped to 15% after the sell-off.
“We’re not just a crypto bank, and we want that to come across loud and clear,” said Eric Howell, the bank’s COO, in December.
Fu adds, “The recent shutdown of SVB, Silvergate, and Signature, three of the most crypto-friendly banks in the US, has made the US a challenging place for crypto VCs, exchanges, and startups to conduct business.
While depositors will be compensated, the most popular real-time payment platforms, like Silvergate Exchange Network (SEN) and Signet, will be gone.”
Tuesday reports indicate Signature Bank’s Signet service is still working. Industry participants are already seeking new solutions. They need to search quickly. Signature Bank’s Signet Platform and Silvergate’s Exchange Network (SEN) provide crypto banking for their customers. Both allowed commercial clients to pay in US dollars without transaction costs, settle payments in real-time, and make and receive payments 24/7.
Signet debuted two years after SEN in 2017. The networks have transferred over $2 trillion between digital asset exchanges since 2019. These two payment networks may represent the crisis’s biggest short-term loss. Cryptocurrency businesses may struggle without cryptocurrency-specific payment networks. Trading costs may rise with a slow and expensive ACH network.
Slower and costlier ACH transactions. Crypto corporations, especially exchanges, prefer Signet and SEN. Meanwhile, crypto founders are desperately seeking new financial partners. Twitter speculates about industry direction. DCG, CoinDesk’s parent company, is seeking additional banking partners for portfolio firms. DCG recognized Santander, HSBC, Deutsche Bank, BankProv, Bridge Bank, Mercury, Multis, and Series Financial as crypto-friendly in a memo viewed by CoinDesk.
The letter suggests crypto businesses may have limited financial services. Brokerage, money market services, and wire money to others are examples. Traditional banks may open accounts for crypto businesses, but their bitcoin exposure may limit them. Small-to-medium banks’ crises have spread throughout the financial industry. Fearing contagion, funds are shifting to larger institutions. “Global contagion worry and the loss of confidence in the resilience of regional banks that may have bond investment portfolios comparable to SVB are hurting banking stocks,” Fu says.
Short-term outcomes are unknowable. But, investors’ long-term investment strategies are shifting. P2P.org Research Head Steven Quinn thinks safer bets exist. “Ethereum staking is ideally positioned to gain as a risk-on asset that delivers actual yield.”