Banking crisis contagion spreads to crypto

Crypto has gone off the rails – literally.

Just not in the way industry observers and critics may have first thought or expected.

Rather, the developing banking crisis that field Silicon Valley Bank (SVB) and Signature Bank, forcing Silvergate Bank to self-liquidatinghas similarly degraded the digital asset industry’s most important payment rails.

Almost all the household names in crypto and many smaller firms relied on Silvergate and Signature as their primary ramps into the traditional banking sector. Now, without these banking partners, crypto companies are looking for new ways to work with fiat currency and accept dollar deposits in return for services or in exchange for tokens.

Silvergate Silvergate Exchange Network (SEN) and that of the signature bank The signet platforms were for many years invaluable to the crypto industry, allowing 24/7, 365 real-time payments outside of traditional banking hours and without the use of more traditional and relatively limited payment services such as the Federal Reserve’s Fedwire or ACH transfers.

Complicating matters, is the FDIC (Federal Deposit Insurance Corporation). allegedly which signals that all bidders attempting to acquire Signature Bank from the receiver must agree to “give up all crypto business,” according to report from Reuters.

Although hope is eternal, an FDIC spokesperson told Reuters after publication that the agency would not “require” divestment of crypto activities as part of any sale.

It remains unclear whether a future buyer will decide to reintroduce Signature’s Signet platform.

read more: The Silicon Valley Bank Story That No One Has Told

It is hard to overstate how critical both Signet and SEN were to the business structures of many top crypto firms.

Their closure also affects digital asset traders and the exchanges that support them, as they no longer have the ability to exit their bets outside of normal banking hours – a knock-on effect observers believe could add an extra level of volatility to the already turbulent crypto. markets.

Silvergate closed LATE on Friday, March 3for announcement the voluntary liquidation of the business on Wednesday 8 March.

Financial regulators in New York took over Signature on Sunday, March 12, ending the viability of the Signet platform as an ongoing service.

Tables turned: Crypto needed savings from the banking industry

Following the liquidation of SVB, Silvergate and Signature, the crypto company Circle, the issuer of the USDC stablecoin, processed $3.8 billion in redemptionsor investors who exchange their stablecoin tokens back to dollars from Monday (March 13) to Wednesday (March 15) this week.

USDC, which is supposed to maintain a stable 1:1 peg to the US dollar, broke this link and fell to as low as $0.88 after Circle revealed that billions of the stablecoin’s reserves were held at the collapsed SVB, prompting investors to redeem their tokens out of broader market fears.

Circle Chief Jeremy Allaire announced Sunday (March 12) that Circle would begin relying on settlement through BNY Mellonlimiting redemption requests to traditional banking hours and not the previous anytime-anywhere banking flexibility crypto-assets once enjoyed.

“We have eliminated virtually the entire backlog of minting and redemption requests for USDC,” Circle said in a statement.

The company has established a New relationship with crypto-friendly bank, Cross River, to bank its USDC token reserves and support the minting and redemption process.

“Trust, security and 1:1 redeemability of all USDC in circulation are of utmost importance to Circle, even in the face of bank contagion affecting the crypto markets,” Allaire said.

Government conspiracies

Signature Bank board member Barney Frank, the former U.S. lawmaker whose name is on the Dodd-Frank banking regulation, said during a March 12. interview that Signature Bank could have survived, but regulators “wanted to send a message to get people away from crypto.”

The closing of crypto’s two main banks, one voluntarily and the other involuntarily, within the same week has fueled wider speculation that the government is “targeting” the digital asset industry.

“This coordinated behavior seems disturbingly reminiscent of Operation Choke Point, which, as you know, was an Obama administration initiative in which federal regulators pressured financial institutions to cut off financial services to certain licensed, legally operating industries, simply because certain regulators and policy makers went against these industries” reading a letter sent to Federal Reserve Chairman Jerome Powell by a group of Republican senators, led by Bill Hagerty of Tennessee.

In a statement relayed by Reuters, the New York State Department of Financial Services (NYDFS), which placed Signature in FDIC receivership, said, “the decisions made over the weekend had nothing to do with crypto.”

Despite unfortunate speculation, the failure of Signature Bank and the self-liquidation of Silvergate are more a reflection of concentrated fragilities in their operating models than a coordinated attack.

One thing remains abundantly clear – the crypto industry, whether by accident or design, is facing a banking crisis in the United States

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