“Crypto Has Been De-Banked:” Impact of Signature, Silvergate, and Silicon Valley Bank Collapse

Crypto businesses in the U.S. are running out of banking options.

A woman flying off a cliff holding colorful dollar sign balloons.
  • Signature Bank has become the third major crypto-friendly bank in the U.S. to collapse. 
  • Signature, Silvergate, and Silicon Vally Bank all failing will have long-term ramifications for crypto in the U.S.
  • Several crypto household names are now battling U.S. regulators on one side and a banking collapse on the other. 

Bitcoin was famously created in the wake of the 2008 banking collapse as a way for individuals to avoid the impact of centralized financial system failures. However, 15 years later, a banking breakdown is rocking the cryptocurrency ecosystem.

The past week has brought massive bank closures as Signature Bank followed Silvergate and Silicon Valley Bank in collapsing. All the banks have gained a reputation of being among the US’s most crypto-friendly financial institutions. 

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Signature and Silvergate enabled fast payments between customers and exchanges, supporting digital-asset liquidity. The former ran Signet, a payment network that allowed commercial crypto clients to make real-time payments in dollars at any time, seven days a week.

The latter operated the Silvergate Exchange Network (SEN), allowing users, including hedge funds and crypto firms like Coinbase, to transfer funds seamlessly and instantly.

Meanwhile, Circle, the issuer of the USDC stablecoin, said it has $3.3 billion at Silicon Valley Bank. Coinbase and Paxos, which had previously partnered with Binance on the BUSD stablecoin, admitted to holding a combined balance of ~$500 million at Silvergate before it fell. 

While most companies impacted by the banks going down are confident that there will be no damage to clients who hold funds with them, the long-term ramifications for crypto are concerning. 

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Austin Campbell, adjunct assistant Professor of Business at Columbia Business School, told Bloomberg, “Crypto has basically been de-banked, especially for 24/7 fast payments rails.” He added that crypto needs “to look to other jurisdictions going forward.” 

The U.S. has become a hostile operating ground for crypto companies due to the hardline policing from regulators. Coinbase, Paxos, and Circle–now battling a banking crisis in the U.S. – have also been clashing with the SEC and other regulators. 

Once the dust settles after these banks fall, and depositors are made whole, many crypto companies will be left looking for new banking partners. However, this may prove difficult with the current regulatory landscape and banks presumably trying to avoid risk. 

On the Flipside

  • Since Bitcoin hit a low of $19,662 on Friday, 10 March, the major coin has rallied to a high of $22,510 on Monday, March 13,  off the bad banking news through the weekend.

Why You Should Care

Bitcoin’s principles of being decentralized and separate from the banks remain true, but the ecosystem of cryptocurrency has grown to be ingrained with the global financial system. The on-and-off ramping between fiat and crypto is still predominantly held by centralized exchanges, and they are susceptible to financial system failures. 

Read more about the decline and collapse of Silvergate Bank:
Is Troubled Crypto Bank Silvergate Set to Follow in FTX’s Footsteps?

Read about Justin Sun’s poorly timed Withdrawal from Huobi:
Justin Sun Withdraws $60M from Huobi Amid HT Token Flash Crash

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
Darryn Pollock

Darryn Pollock is a South African-born, UK-based journalist and content writer for DailyCoin with a focus on regulation and legislation revolving around the cryptocurrency space. He has covered the evolving crypto regulatory space, and examined how the US has approached law-making to offer protection in the growth of innovation. Darryn values traditional journalistic principles of truth, accuracy, independence, fairness, and impartiality, and has a Bachelor of Arts degree in Journalism and Law from Rhodes University in South Africa.