The crypto industry may have weathered the storm, but the outcome will be significant as it faces a de-banking crisis and some uncertain next steps.
So, to begin with, three banks collapsed in less than a week. All three have significant ties to the crypto sector. Crypto was the preferred customer base of two of them: Silvergate and Signature. The crisis at Silicon Valley Bank (SVB), the largest of the three, has made the biggest waves. At one time it was the 20th largest bank in the country. It failed on March 10, 2023, with its holdings now managed by the Federal Deposit Insurance Corporation.
All this happened between Thursday to Monday. If you weren’t watching crypto Twitter — and you’re not much of a news junkie — you may have missed it. lucky you.
The market returned to a relatively calm state on Monday. But this does not mean that the crisis is over. Questions still hang over the future of the industry and its relationship with TradeFi.
Danny Talwar, head of tax at Koinly, says we could see significant consequences due to de-banking of the sector. “Crypto startups and exchanges will now look for alternative banking providers in the wake of these collapses. The debanking of crypto businesses could seriously harm the sector and innovation in blockchain-based technologies.
“The shockwaves following the collapse and closure of several crypto-friendly banks such as Silvergate, SVB and Signature Bank could set the industry back a decade. In the medium term, this, mixed with the crypto-native collapse over the past year, will result in an extremely difficult environment for innovation to thrive within the United States.
Bankageddon will have long-term consequences
According to Brian Fu, co-founder and co-project lead at zkLend, the results will vary depending on the size and business of yours. “For large firms such as exchanges, the impact would be delays in settlement times and difficulty in on-off ramping. Whereas for small firms, they may not be able to open a bank account to run daily operations.”
To kick things off, Binance announced on Tuesday that its British pound (GBP) on-off ramp had been suspended for new users since March 13. This will affect all users in 9 weeks time from May 22nd. Paysafe, its great banking partner, hasn’t revealed a reason yet. It is unknown whether this is related to the wider contagion of banking that has affected the United States at large.
After the FTX implosion in November, Signature Bank assured its customers that only a small percentage of their money was involved with the infamous exchange. The bank sold $8 billion to $10 billion worth of digital assets—distancing itself from cryptocurrencies. The selloff reduced its digital assets to less than 15% of the bank’s total assets.
In December, Eric Howell, the bank’s chief operating officer, said, “We are not just a crypto bank, and we want that to come out loud and clear.”
Crypto banking dependent on specialized payment networks
“The recent closures of SVB, Silvergate and Signature, three of the most crypto-friendly banks in the US, have made the US a difficult place for crypto VCs, exchanges and startups to do business,” Fu continued. Is.
“While depositors will be made whole, their demise means that the most popular real-time payment platforms, including the Silvergate Exchange Network (SEN) and Signet, will no longer be available.”
Tuesday’s report indicates that Signature Bank’s Signet service is still operational. But industry players are already looking for new solutions. They have a good reason for looking sharp and tough.
Signature Bank’s Signet Platform and Silvergate’s Exchange Network (SEN) have played a key role in facilitating crypto banking services for their customers. Both enabled commercial customers to pay in US dollars without transaction fees, settle payments in real time, and make and receive payments 24/7.
SEN was the first to debut in 2017, while Signet was launched two years later. Since 2019, the two networks have facilitated transfers of over $2 trillion to and from digital asset markets. The loss of these two payment networks could be the biggest short-term blow from this crisis.
Businesses operating in the cryptocurrency industry can find it challenging to operate smoothly without a payment network specifically designed for cryptocurrencies. An expensive and slow Automated Clearing House (ACH) network can increase trading costs.
ACH transfers are slower and may incur higher fees. As a result, crypto firms—especially high-volume businesses like exchanges—prefer to use networks like Signet and SEN.
Where Are the New Crypto-Friendly Banks?
Meanwhile, the crypto founding community is looking for new banking partners. The direction of the industry has been a hot topic of speculation on Twitter. Digital Currency Group (DCG), CoinDesk’s parent company, is looking for new banking partners for its portfolio companies.
According to the memo seen by CoinDesk, the DCG has identified Santander, HSBC, Deutsche Bank, BankProv, Bridge Bank, Mercury, Multis and Series Financial as interested in working with crypto firms.
According to the memorandum, some banking services may be limited for crypto companies. These include brokerage, money market services and lending money to third parties. Although traditional banks may be open to opening accounts for crypto firms, restrictions may be imposed depending on the extent of their cryptocurrency exposure.
Big banks are short term winners
The crisis in these small- to medium-sized banks has caused a ripple effect in the financial industry. Funds are moving towards larger institutions for fear of widespread infection. Fu continues, “Fears of global contagion and a lack of confidence in the strength of regional banks, which may have bond investment portfolios similar to SVB’s, are driving losses.”
It is impossible to know what will happen in the short term. But over the medium to long term, the way investors decide where to put their money is changing. Steven Quinn, research lead at P2P.org, believes those are relatively safe bets. “As a risk-on asset that also generates real yield, Ethereum staking is uniquely positioned to profit.”
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