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Crypto Banking Closures Will Make the US a More Difficult Place to Do Business

4 mins
Updated by Josh Adams
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In Brief

  • Within less than a week, the U.S saw the collapse of three tech-facing banks. It was the most dramatic week in banking since the financial crash of 2008.
  • On Monday, the crypto markets bounced back, but the U.S crypto industry has lost significant banking partners.
  • Much of the crypto industry relied on specialized payment systems provided by Signature and Silvergate.
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The crypto industry may have weathered the storm, but the aftermath will be significant as they face a de-banking crisis and some uncertain next steps.

So, to start with, three banks collapsed in less than a week. All three have significant connections with the crypto sector. Crypto was a favorite client base of two of them: Silvergate and Signature. The crisis in Silicon Valley Bank (SVB), the biggest of the three, has made the biggest waves. At one point, it was the country’s 20th-largest bank. It failed on March 10, 2023, with its holdings now managed by the Federal Deposit Insurance Corporation.

All of this happened between Thursday and Monday. If you weren’t looking at crypto Twitter—and you’re not much of a news junkie—you might have missed it. Lucky you. 

Markets returned to a state of relative calm on Monday. But that doesn’t mean the crisis is over. Questions still hang over the future of the industry and its relationship to TradFi.

We could be looking at significant consequences due to the de-banking of the sector, says Danny Talwar, the Head of Tax at Koinly. “Crypto startups and exchanges will now be searching for alternative banking providers in the wake of these collapses. The debanking of crypto businesses could seriously harm the sector and innovation in blockchain-based technologies.”

He continued,

“The setbacks following the collapse and closure of multiple crypto-friendly banks such as Silvergate, SVB, and Signature Bank may even set the industry back a decade. In the medium term, this will compound with the more crypto-native collapses from the past year, resulting in an extremely difficult environment for innovation to thrive within the USA.”

Bankageddon Will Have Longer-Term Consequences

According to Brian Fu, the co-Founder and co-Project Lead of zkLend, the fallout will be different depending on your size and business. “For the larger firms such as exchanges, the impact would be delayed settlement times and difficulty in on-off ramping. While for smaller firms, they may simply not be able to open a bank account to run daily operations.”

To top things off, Binance announced on Tuesday that its British pound (GBP) on-and-off ramps were suspended for new users from March 13. It will affect all users from May 22, in 9 weeks’ time. Paysafe, its sterling banking partner, hasn’t yet provided a reason. It is unknown whether it is connected to the wider implosion of banking, which has largely affected the USA. 

After FTX imploded in November, Signature Bank assured its customers that only a small percentage of their money was involved with the disgraced exchange. The bank sold off $8 billion to $10 billion worth of digital assets—distancing itself from cryptocurrency. The sell-off lowered its digital assets to less than 15% of the bank’s total assets.

In December, Eric Howell, the bank’s chief operating officer, said, “We’re not just a crypto bank, and we want that to come across loud and clear.” 

Crypto Banking Relied on Specialized Payment Networks

“The recent closure of SVB, Silvergate, and Signature, three of the most crypto-friendly banks in the US, has made the US a difficult place for crypto VCs, exchanges, and startups to do business,” continues Fu. 

“While depositors will be made whole, their demise means the most popular real-time payment platforms, including Silvergate Exchange Network (SEN) and Signet, will no longer be available.”

Reports out on Tuesday suggest that Signature Bank’s Signet service is still operational. But industry players are already looking for new solutions. They have a good reason to look fast and hard.

Signature Bank’s Signet Platform and Silvergate’s Exchange Network (SEN) have played a crucial role in facilitating crypto banking services for their clients. Both enabled commercial clients to pay in US dollars without transaction fees, settle payments in real-time, and make and receive payments 24/7. 

SEN was the first to debut in 2017, while Signet was launched two years later. Since 2019, both networks have facilitated the transfer of more than $2 trillion to and from digital asset markets. The loss of these two payment networks may be the biggest short-term blow from this crisis.

Businesses operating in the cryptocurrency industry may find it challenging to operate smoothly without payment networks specifically designed for cryptocurrencies. A costly and slower automated clearing house (ACH) network may increase trading expenses. 

ACH transfers are slower and may incur higher fees. As a result, crypto firms—especially high-volume businesses like exchanges—prefer using networks like Signet and SEN.

Where Are the New Crypto-Friendly Banks?

In the meantime, the crypto founder community is furiously looking for new banking partners. The direction of the industry has been a hot topic of speculation on Twitter. Digital Currency Group (DCG), the parent company of CoinDesk, is seeking new banking partners for portfolio companies. 

According to a memo seen by CoinDesk, DCG has identified Santander, HSBC, Deutsche Bank, BankProv, Bridge Bank, Mercury, Multis, and Series Financial as willing to work with crypto firms.

According to the memo, certain banking services may be limited for crypto companies. These include brokerage, money market services, and wiring money to third parties. Although traditional banks may be open to setting up accounts for crypto firms, restrictions would likely be imposed based on the extent of their cryptocurrency exposure.

Big Banks Are the Short-Term Winners

The crisis in these small-to-medium sized-banks has called a ripple effect across the financial industry. Funds are moving towards larger institutions in fear of wider contagion. “Banking stocks are taking a beating because of global contagion fear and the loss of confidence in the strength of regional banks that may have bond investment portfolios similar to SVB,” says Steven Quinn, Research Lead at P2P.org.

It’s impossible to know what will happen in the short term. But in the medium to long term, the way investors decide where to put their money is changing. Quinn, however, believes there are relatively safer bets out there. “As a risk-on asset that also generates real yield, Ethereum staking is uniquely positioned to benefit.”

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Josh Adams
Josh is a reporter at BeInCrypto. He first worked as a journalist over a decade ago, initially covering music before moving into politics and current affairs. Josh first owned Bitcoin in 2014 and has followed the space ever since. He is particularly interested in Web3 adoption, policy and regulation, CBDCs, privacy, and the future of the metaverse.
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