© Benjamin Fanjoy/AP Photo Igor Fairmark of the Federal Deposit Insurance Corporation (FDIC) leaves Silicon Valley Bank headquarters in Santa Clara, California on March 13, 2023.The biggest banking boom in America since the financial crisis of 2008 is creating a new headache for cryptocurrency executives.
The three banks that suddenly collapsed last week cater to the digital asset industry, and their collapse has raised fears that cryptocurrencies will be pushed out of the financial mainstream in the US.
Regulators, including the Federal Reserve, have warned lenders about the risks associated with digital assets. Cryptocurrency warning came shortly after the government took over Silvergate Capital, Silicon Valley Bank and Signature Bank. For crypto-heads, they seem to be a problem.
“If banks are told that they cannot operate in this sector, how can this sector be diversified and served? said Dante Dispart, director of strategy for stablecoin issuer Circle. “The risk, unfortunately, is that there are too few banks in a sector that is too big.”
The banking turmoil last week was another setback for the cryptocurrency industry, which wiped out much of its value after the collapse of one of the largest cryptocurrency exchanges, FTX, and the indictment of its founder, Sam Bankman-Freed.
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In particular, in recent years, Silvergate and Signature have become an integral part of the digital asset ecosystem, offering both traditional banking services and fast payment networks. SVB has lower industry exposure.
Now that the bank is about to close, executives are frantically looking for new banking partners, with some experts even suggesting regulators are trying to put them out of business.
“It’s hard to look at this and not see a concerted effort to bring this industry to a halt,” said Ryan Selkis, CEO of cryptocurrency research firm Messari.
But not everyone is convinced that the banking crisis is so tied to the connection of creditors with cryptocurrencies. Ultimately, the cause could be a combination of poor risk management and macroeconomic problems, said Mark Williams, a former Federal Reserve analyst who teaches at Boston University. In particular, the Federal Reserve's aggressive fight against inflation has led some lenders to discount bonds with smaller deposits and only at a loss.
“When depositor confidence is lost,” Williams said, “even the strongest banks cannot survive.”
A spokeswoman for the New York City Department of Financial Services, which closed Signature on Sunday, said the decision "has nothing to do with crypto," adding that the bank also handles everything from grocery stores to commercial real estate.
"The bank failed to provide reliable and consistent data, leading to a severe crisis of confidence in the bank's management," a spokesman, who spoke on condition of anonymity, commented on the department's decision, said in a statement. "The decision to take over the bank and turn it over to the FDIC was based on the current state of the bank and its ability to safely conduct business on Monday."
The New York regulator's statement followed the former member of the House of Representatives. Board member who signed the agreement, Barney Frank, told POLITICO on Monday that the run on the bank was driven by “[the Silicon Valley Bank] and the cryptocurrency turmoil.”
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“I think if it wasn’t for FTX and the extreme crypto confusion, this wouldn’t have happened, neither [the Silicon Valley Bank], nor us,” said the Massachusetts Democrat, who is a key architect of the new rules. . It came into effect after the 2008 crisis. "And it wasn't what regulators were expecting."
However, regulators are monitoring the impact of banking industry troubles on cryptocurrencies.
Commodity Futures Trading Council Chairman Rostin Behnam said on Wednesday that "we would be happy to leave without disrupting our markets" after the banking regulator reacted over the weekend.
But the CFTC is committed to ensuring that the crypto derivatives markets it controls “remain flexible [and] fraud-free.” Given Silvergate and Signature's close ties to the industry, Benham told reporters at an industry conference in Florida that the crypto market is likely to gain access to liquidity and traditional finance.
Until now, the biggest crypto players were not aware of the immediate impact.
According to the company, Coinbase, the nation's largest cryptocurrency exchange by market cap, has $240 million in corporate funds locked up in Signature. But customer funds were not affected, Coinbase tweeted.
Kraken ends relationship with Silvergate. Both companies say they use multiple banks for customer funds.
However, the Circle-backed USDC token was rocked by traders over the weekend.
The so-called sale came after the company discovered that more than $3 billion was hidden in Silicon Valley Bank. While only a fraction of Circle's reserves, most of which are held in a money market fund managed by BlackRock, news of its disclosure sent the token's price below $1. Thus, the token has made a great contribution to cryptography. both leaders and supporters.
The USDC “money hack” brings uncertainty to the cryptocurrency market, which sees the token as a stable asset and a critical element of the ecosystem’s payments infrastructure.
The volatility has more to do with the Silicon Valley bank than Circle, Dyspart said. The bank's investment portfolio suffered when the Fed began raising interest rates to curb inflation. Circle's influence on organizations poses a serious threat to its brand.
Dispar hopes that pro-crypto lawmakers can take advantage of the devastation caused by the collapse of the three banks and pass the stablecoin legislation that Home Financial Services has been working on for about a year.
Sam Sutton, Zachary Warmbrodt and Victoria Guida contributed to this report.