Cryptocurrencies and the US banking crisis

Many believe that in recent days we are witnessing the biggest banking collapse in America since the financial crisis of 2008. This time, a new type of asset is involved in the catastrophic picture – cryptocurrencies.

The three banks that suddenly collapsed in the past week served the digital asset industry, analysts said. The collapse of the three institutions has raised fears that the crypto-market will suffer severe consequences. Still, some hope that the events will bring an end to the “winter” in the cryptocurrency world.

Regulators around the world have long been warning people to be careful where they put their funds and to be cautious about the risks of dealing in digital assets. For crypto-critics, these warnings sounded prescient, and now the collapse of Silvergate Capital, Silicon Valley Bank and Signature Bank is a kind of confirmation.

We can expect the banking turmoil of the last week to be felt all over the world, but it is also a disaster for the crypto-industry, whose value has been taken away after the collapse of one of the largest crypto-exchanges, FTX, and the indictment of its founder Sam Bankman – Fried.

In recent years, Silvergate and Signature have become an integral part of the digital asset ecosystem, offering both traditional banking services and fast payment networks. SVB had less exposure to the crypto-industry.

Suffocation of the crypto-industry?

A large number of managers in companies related to the crypto-business find an obvious connection between what happened and the events in the virtual money business. “It’s hard to look at this and not see a coordinated effort to stifle the industry,” Ryan Selkis, CEO of crypto-research firm Messari, told Politico.

Still, not everyone is convinced that the banking crisis is closely related to the crypto-markets. Ultimately, the cause was probably a combination of poor risk management and macroeconomic problems, says Mark Williams, a former US Federal Reserve banking expert who teaches at Boston University.

A spokesman for the New York Department of Financial Services, which shut down Signature on Sunday, said the decision had “nothing to do with the crypto business.” He added that the bank deals with everything from food vendors to real estate.

“The bank has failed to provide reliable and conclusive data, creating a significant crisis of confidence in management,” the spokesman said, speaking on condition of anonymity. “The decision to take possession of the bank and turn it over to the FDIC was based on the current condition of the bank and its ability to conduct business in a safe and sound manner.”

Hyper-nervousness

The New York regulator’s comment came after former Congressman Barney Frank, a Signature board member, said on Monday that what was happening in the banks was caused by the “nervousness and hyper-nervousness of Silicon Valley Bank and the crypto business.”

“I think if it wasn’t for the FTX case and the extreme nervousness about cryptocurrency, this wouldn’t have happened – not even to Silicon Valley Bank or to us,” the politician said. “And it was not something that could have been foreseen by the regulators.”

However, regulators are watching for any possible ramifications of what’s happening in the US banking industry on crypto-markets.

Coinbase, the largest U.S. crypto exchange by market volume, has $240 million in corporate funds locked up in Signature, according to the company. But customer funds are not affected, Coinbase assured on its official social media channel.

Kraken ends its relationship with Silvergate. Both companies indicated that they use several different banks for customer funds.

Not so calm is the landscape for Circle’s USDC token, which is pegged to the dollar. The so-called “unbundling” came about after the company revealed it had more than $3 billion on deposit at Silicon Valley Bank. Although this represents only a small portion of Circle’s reserves – the majority of which are held in another cash pool – news of the exposure caused the token’s price to fall below its fixed value of $1.

Is the end of the “winter” for cryptocurrencies

Now, cryptocurrency executives are hoping that lawmakers will take advantage of the turmoil surrounding the collapse of the three US banks to propose and pass new stablecoin legislation.

“For now, it is not clear what new financial institutions will partner with crypto-companies after the collapse of Silvergate, SVB and now Signature,” commented Ilya Volkov, CEO and co-founder of YouHodler, a Swiss international fintech platform. “The industry is currently suffering from options exhaustion and this needs to be addressed soon to prevent further problems,” added Volkov, noting that this will cause some fearful reactions from investors.

In the long run, however, what happened will not hurt the crypto-industry because there will likely be other, smaller banks that could bridge the gap.

Some players are hoping that the turmoil in the US banking sector will eventually bring an end to the “winter” in the cryptocurrency world.