Signature, SVB, Silvergate failures: Effects on crypto sector

Two of the biggest crypto-friendly banks and the biggest banks for tech startups both failed in less than a week. While cryptocurrency prices rose on Sunday night after the federal government intervened to provide a backstop for depositors in two of the banks, events have caused instability in the stablecoin market .

Silvergate Capitala central lender to the cryptocurrency industry, said on wednesday that it will end its operations and liquidate its bank. Silicon Valley Bank, a major lender to startups, collapsed on Friday after depositors withdrew more than $42 billion following the bank’s statement Wednesday that it needed capital mobilization. 2.25 billion USD to strengthen its balance sheet. Signatures, also heavily crypto-focused but much larger than Silvergate, are arrested on Sunday night by bank managers.

Signature and Silvergate are the two main banks for crypto companies, and nearly half of the US venture-backed startups have kept cash at Silicon Valley Banks, including hedge funds. crypto-friendly venture capital and several digital asset companies.

The federal government intervened on Sunday to secure all deposits to SVB and Signature senders, creating more confidence and sparking a small rally in the cryptocurrency market. Both bitcoin And ether nearly 10% higher in the last 24 hours.

According to Nic Carter of Castle Island Ventures, the government’s willingness to back both banks shows that the government is returning to the liquidity-providing approach, rather than the tightening and loose monetary policy that has historically been the case. proven to be beneficial for cryptocurrencies and other speculative asset classes.

But the instability once again exposes the vulnerability of stablecoins, a subset of the crypto ecosystem that investors can often rely on to maintain a set price. Stablecoins are supposed to be pegged to the value of a real-world asset, such as a fiat currency like the US dollar or a commodity like gold. But unusual financial conditions can cause them to fall below their fixed value.

A lot of crypto problems last year stemmed from the stablecoin sector, starting with TerraUSD crash last May. Meanwhile, regulators have focused on stablecoins over the past few weeks. Binance’s dollar-pegged stablecoin, BUSD, has seen massive outflows after New York regulators and the Securities and Exchange Commission put pressure on its issuer. it, Paxos.

Over the weekend, confidence in the sector once again took a hit as USDC – the second most liquid US dollar-pegged stablecoin – lost its fixed value, at one point dipping below 87 cents in Saturday after its issuer, Circle, admitted to having $3.3 billion in banking with SVB. In the digital asset ecosystem, Circle has long been regarded as one of the big boys in the room, boasting close ties and support from the traditional financial world. It has raised $850 million from investors like BlackRock and Fidelity and has long said it plans to go public.

DAI, another popular dollar-pegged virtual currency partially backed by USDC, traded as low as 90 cents on Saturday. Both Coinbase and Binance have halted USDC to dollar conversions.

On Saturday, some traders started to exchange Their USDC and DAI for Tether, the world’s largest stablecoin with a market value of over $72 billion. Tether’s issuer does not have any exposure to SVB and it is currently trading above $1 as traders flock to safer pastures, although tether Business practices have been called into questionas well as its reserve state.

Stablecoin market begins to recover on Sunday night after Circle released a blog post says it will “make up any shortfalls using company resources.” Since then, both USDC and DAI have reverted to their dollars.

Now that it is clear that SVB depositors will be paid in full, Carter told CNBC that he expects USDC to trade at par.

In the long run, the closure of the trio of crypto banks could cause problems for bitcoinlargest cryptocurrency in the world, with a market value of $422 billion.

Silvergate Exchange Network (SEN) and Signet’s signature is a real-time payment platform that crypto customers consider as a core service. Both allow commercial customers to make payments 24 hours a day, seven days a week, through their respective instant payment services.

“The liquidity of bitcoin and crypto in general will be somewhat impaired as Signet and SEN are key for companies to get fiat by the end of the week,” Carter said, adding that he hopes that customer banks will step in to fill the void left by SEN and Signet.

Mike Brock wrote in a post on social media app Damus: “These are the two most bitcoin-friendly banks, supporting the majority of fiat payments for bitcoin transactions between merchant partners in the US.” . Brock is the CEO of TBD at Block, a unit focused on cryptocurrency and decentralized finance.

Although Carter thinks the Fed’s intervention to secure SVB’s depositors will halt the operation of a larger bank on Monday, he said it is still disappointing to see three banks the biggest crypto friendly out of business for just a few days.

“There are very few options for crypto companies right now, and the industry will be liquidity constrained until new banks come in,” Carter said.

Mike Bucella, a longtime investor and executive in the crypto space, says that many in the industry are turning to Mercury and Axos, two other banks that cater to startups. Meanwhile, Circle has publicly said that it is moving assets to BNY Mellon as Signature Bank is about to close.

“In the short term, crypto banking in North America is a tough place,” said Bucella. “However, there are plenty of challenger banks that can make up for that slowness.”