The recent closure of three major crypto-friendly banks, Signature Bank, Silicon Valley Bank, and Silvergate Bank, has sent shockwaves across the digital asset industry. Crypto companies could face significant challenges in accessing traditional banking partners as a result, according to some in the crypto community.
The Federal Reserve announced the closure of Signature Bank on March 12, citing “systemic risk” as the reason. It came only days after Silicon Valley Bank was ordered to shut down on March 10. A week prior, Silvergate Bank, another crypto-friendly bank, announced it would close its doors and voluntarily liquidate on March 8.
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.
The closure of these banks may leave crypto companies without viable banking options, according to Scott Melker, a prominent crypto investor. He believes that the collapse of the three banks will leave crypto companies “basically” without banking options. Meltem Demirors, Chief Strategy Officer of 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.”
Some industry experts believe that the closure of the banks 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.
There are already viable alternatives out there, according to Mike Bucella, General Partner at BlockTower Capital. Many in the industry are already changing to Mercury Bank and Axos Bank, he told CNBC. “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.”
The incidents have seen “crypto’s banking rails” shuttered in less than a week, with a warning for the future of USDC. Ryan Selkis, CEO of blockchain research firm Messari, noted that the industry should be fighting to protect and promote USDC, as it is the last stand for crypto in the US.
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.
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