Three banks failed in a week. Three are crypto-related. Silvergate and Signature have preferred crypto clients. SVB’s dilemma is the largest. It was the nation’s 20th-largest bank. It collapsed on March 10, 2023, and the FDIC currently manages its assets.
This happened from Thursday–Monday. If you don’t follow crypto Twitter or news, you may have missed it. Fortunately.
Markets calmed on Monday. The situation 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 sources. Debunking crypto firms might damage the industry and blockchain innovation.
Bankageddon’s Long-Term Effects
zkLend co-Founder and co-Project Head Brian Fu says the repercussions depend on your business size. “Larger businesses like exchanges would see delayed settlement times and on-off ramping. For smaller enterprises, opening a bank account for everyday operations may be impossible.
On Tuesday, Binance banned its British pound (GBP) on-and-off ramps for new customers starting March 13. From May 22, 9 weeks later, it will affect all users. Paysafe, its sterling banking partner, hasn’t explained. It is unclear if it is related to the American financial crisis.
Signature Bank told its clients that just a small amount of their money was associated with the discredited exchange after FTX collapsed in November. 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 simply a crypto bank, and we want it to come across loud and clear,” said Eric Howell, the bank’s COO, in December.
Crypto Banking Using Dedicated Payment Networks
“The recent shutdown of SVB, Silvergate, and Signature, three of the most crypto-friendly banks in the US, has made the US a challenging environment for crypto VCs, exchanges, and startups to conduct business,” Fu says.
While depositors will be compensated, the most popular real-time payment systems, 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 its customers. Both allowed business 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 maybe this crisis’s largest short-term loss.
Cryptocurrency businesses may struggle without cryptocurrency-specific payment networks. A sluggish, expensive ACH network may raise trading costs.
Slower and costlier ACH transactions. Crypto corporations, notably exchanges, prefer Signet and SEN.
New Crypto-Friendly Banks?
Meanwhile, crypto founders are desperately seeking new financial partners. Twitter speculates on 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 document viewed by CoinDesk.
Large Banks Gain Short-Term
Small-to-medium banks crises have spread across the financial industry. Fearing contagion, funds are shifting to larger institutions. “Global contagion worry and the lack of trust 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 believes safer bets exist. “Ethereum staking is ideally positioned to gain as a risk-on asset that delivers actual yield.”