Crypto-focused U.S. bank Silvergate Capital Corp said it planned to close last week after it was hit with losses following the dramatic collapse of crypto exchange FTX in November last year. Its closure was followed by the collapse on Sunday of Signature Bank — seen as U.S. crypto firms’ main alternative to Silvergate — in one of the largest failures in U.S. banking history.
The global banking sector was thrown into turmoil by Friday’s collapse of Silicon Valley Bank, which sent global bank stocks plunging on Monday on concern about further contagion. The tech-focused lender also banked crypto companies and was the second-biggest U.S. bank failure.
Crypto analysts said that the U.S. bank closures, along with a regulatory crackdown in the U.S., would push firms to seek banking partnerships in Europe, Asia, and “offshore”. “U.S. regulators have issued multiple warnings to banks about potential risks of working with crypto companies. They haven’t banned it explicitly but made it clear this would be frowned upon,” said Ivan Kachkovski, crypto and FX analyst at UBS.
Since late last year, U.S. regulators have stepped up regulatory action towards crypto companies, particularly those linked to banking services, whether it be stablecoin issuers such as Paxos or digital asset banks such as Custodia. Venture investor Nic Carter calls this “operation choke point 2.0,” which refers to a coordinated crackdown on crypto through the banking industry.
“A month ago, it was chokepoint — banks discouraged from touching crypto, now it’s… decapitation,” said Carter on Twitter. “Every pro-crypto bank has been shuttered.” George Bousis, co-founder and venture investor at early-stage venture firm Protagonist, remains cautious on recommending banking partners because the environment is changing by the day.
“I wish I had a better answer as far as having a crystal ball to know what would happen at this point, but I don’t,” he added. “And that is one of my worries and something that does keep me up at night.” While openly crypto friendly banks in the U.S. are fading from view, some web3 companies are still managing to find banking partners.
Options include Mercury, Brex and even Wall Street giant JPMorgan Chase, said the unnamed venture investor. JPMorgan declined to comment. Mercury and Brex didn’t immediately respond to requests to comment.
“Medium term, we prefer the larger banks [such as] Chase and co.,” they said. “But at the moment, it’s advisable to have any redundancy really, so folks like Brex or Mercury who can onboard quickly are great options.” Multi-sig startup Den has always used Mercury as a banking partner, combined with the use of on-chain assets.
“It was a pretty smooth process for us,” said Jonah Erlich, co-founder of Den, about the onboarding process to Mercury. After the events of the weekend, Den is looking to increase the percentage of its treasury held on-chain, heeding advice from venture investors. “We are staying with Mercury but are also exploring opening accounts at similar fintech providers utilizing sweep accounts and GSIBs [global systemically important banks],” Erlich said.
