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.
Signature and Silvergate were the two main banks for crypto companies, and nearly half of all U.S. venture-backed startups kept cash with Silicon Valley Bank, including crypto-friendly venture capital funds and some digital asset firms.
In the long run, the shutdown of the crypto banking trifecta could present problems for bitcoin, the world’s largest cryptocurrency, with a market value of $422 billion.
The Silvergate Exchange Network (SEN) and Signature’s Signet were real-time payment platforms that crypto customers considered core offerings. Both allowed commercial clients to make payments 24 hours a day, seven days a week, through their respective instant settlement services.
“Bitcoin liquidity and crypto liquidity overall will be somewhat impaired because Signet and SEN were key for firms to get fiat in on the weekend,” said Carter, who added that he is hopeful that customer banks will step in to fill the void left by SEN and Signet.
“These were the two most bitcoin-friendly banks, supporting the lion’s share of fiat settlement for bitcoin trades between trading counterparties in the U.S.,” wrote Mike Brock in a post on Nostr. Brock is the CEO of TBD at Block, a unit which focuses on cryptocurrency and decentralized finance.
Although Carter thinks the Fed stepping in to guarantee depositors of SVB will prevent a larger bank run on Monday, he says it is still dispiriting to see the three largest crypto-friendly banks taken offline in a matter of days.
“There are very few options now for crypto firms and the industry will be strapped for liquidity until new banks step in,” said Carter.
Mike Bucella, a longtime investor and executive in the crypto space, says that many in the industry are pivoting to Mercury and Axos, two other banks that cater to startups. Meanwhile, Circle has already publicly said that it is shifting its assets to BNY Mellon now that Signature bank is closing.
“Near-term, crypto banking in North America is a tough place,” said Bucella. “However there is a long tail of challenger banks that may take up that slack.”