Two of the banks that were friendliest to the crypto sector and the biggest bank for tech startups all failed in less than a week. While cryptocurrency prices rallied Sunday night after the federal government stepped in to provide a backstop for depositors in two of the banks, the events sparked instability in the stablecoin market.
Silvergate Capital, a central lender to the crypto industry, said on Wednesday that it would be winding down operations and liquidating its bank. Silicon Valley Bank, a major lender to startups, collapsed on Friday after depositors withdrew more than $42 billion following the bank’s Wednesday statement that it needed to raise $2.25 billion to shore up its balance sheet. Signature, which also had a strong crypto focus but was much larger than Silvergate, was seized on Sunday evening by banking regulators.
A number of top global banks are still willing to work with crypto firms. Messages viewed by the news outlet, from its parent company Digital Currency Group, suggest there have been positive responses from the likes of Santander, HSBC and Deutsche Bank. Incidentally, HSBC’s British arm snapped up the U.K. division of Silicon Valley Bank for £1 — that’s $1.21 — on Monday.
It’s also been revealed that DCG has made contact with BlackRock, JPMorgan and Bank of America. Many crypto firms are looking for new banking partners after Silicon Valley Bank, Silvergate and Signature all went under in the space of a week. They enabled exchanges and other businesses to transact instantaneously and 24/7 — offering an alternative to the restricted hours of traditional banks.
Some businesses are now looking beyond the U.S. — and are seeking banking partners in Switzerland and parts of Asia. There have also been murmurings that some exchanges may consider launching their own banking facilities, but this could attract a stern response from regulators.
The impact this news had on the cryptocurrency market will not escape the attention of the regulators. Most notably, a stablecoin issued by Circle, USDC, fell more than 10 per cent from its $1 peg on Saturday after Circle announced that $3.3 billion of its $40 billion reserves were stuck in SVB. If the events of recent months were not reason enough to push cryptocurrency up the regulatory agenda, this latest crisis surely is.
However, the reality is that regulators are barking up the wrong tree. For one thing, unlike Celsius or FTX, Circle has sufficient backing to cover all necessary redemptions. The company calmed the market on Saturday by announcing that “as a regulated payment token, USDC will remain redeemable one for one with the US dollar”.
It went on to say that in the event SVB doesn’t return all deposits, Circle would cover the shortfall using corporate resources. The market reacted instantly, with USDC registering a strong recovery at the time of writing. Contrary to what the sceptics would have us believe, the collapse of Silvergate and SVB is not a sign of weakness in cryptocurrency.
