- Traditional banks and virtual assets
- What losses will the industry suffer due to the closure of major banks?
- The regulators take a strong stand
The New York-based crypto-friendly Signature Bank has been shut down, which is likely to have an impact on the entire digital asset industry. This happened only several days after the second-largest bank failure in American history — the collapse of California’s Silicon Valley Bank which served as one of the main bridges between crypto and fiat money for institutional and retail investors in the U.S.
Traditional banks and virtual assets
Relationships with banks have been challenging for crypto firms for a long time. According to industry insiders, banks have traditionally been hesitant to cooperate with firms that deal in digital assets, partly because the market is unregulated.
At least for some time, Silvergate and Signature were considered to be some of the nation’s most crypto-friendly banks, even though Signature had been reducing its crypto deposits since the FTX meltdown.
What losses will the industry suffer due to the closure of major banks?
Gracy Chen, managing director at crypto exchange and digital asset trading platform Bitget, says that with Signature and Silvergate closed, buying crypto with fiat money may become even more complicated.
According to David Wells, CEO of the world’s first fully encrypted exchange Enclave Markets, it is also probable that the closures will affect the ability of market makers to move capital between different trading platforms. This will restrict liquidity across crypto exchanges, particularly outside of US working hours.
Signature and Silvergate used to enable real-time payments (RTP) with their Signet and SEN networks. Their customers were able to make real-time payments in USD around the clock.
“I don’t expect a rush from any banking partners to launch a 24/7 funds movement solution like SEN and Signet as that was likely a reason Silvergate and Signature were heavily scrutinized,” Wells commented.
On March 13, the OKcoin cryptocurrency exchange announced it had suspended USD deposits by wire transfer and the automated clearing house (ACH), as well as over-the-counter trading.
“Signature is our primary USD bank for customer transactions. Our team is working very hard on alternative channels and solutions in real time,” OKCoin’s CEO Hong Fang commented.
According to Stefan Rust, CEO at Truflation, the primary entry and exit points from crypto to fiat money are effectively no longer there after the Silvergate and Signature shutdown.
Rust said that crypto firms would have to move across into “systemically important banks”, including JP Morgan, Barclays, and Nomura. “However, with regulators like the US SEC making life ever harder for cryptocurrency firms, this may not be simple or even possible for many,” he added.
Регуляторы снова против
At the beginning of the year, the Fed, the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) issued a statement, warning banks about the significant risks associated with crypto assets.
“It’s pretty clear there has been a decision across the bank regulatory agencies in this [Biden] administration that crypto is inherently risky and needs to be extricated from the banking system,” said Brian Brooks, the former OCC acting head.
Brooks asserted his complete confidence in the fact that “regulators were working together” in closing the banks, even though the circumstances of the closures differed.
For example, the New York Department of Financial Services has claimed that Signature Bank was not shut down because of its crypto-related activities, but due to a “crisis of confidence” in its leadership. The California Department of Financial Protection and Innovation said it took possession of Silicon Valley Bank due to its “inadequate liquidity and insolvency.” Silvergate decided to wind down its operations only a week after announcing it would delay publishing the annual report and said the recent events raised questions about its ability to continue as a “going concern.”.
Brian Brooks believes that “these things are not accidents at all.”
