JPMorgan says decline in crypto bank deposits is a “small blip” in long-term outlook
by Arthur · October 21, 2022
The outlook for crypto banks is surprisingly strong given a drop in customer deposits in the wake of depressed prices and low volatility, according to JPMorgan. Both Silvergate Bank and Signature Bank, two commercial banks serving the cryptocurrency industry, reported their third quarter financial results this week. On each bank’s respective payment platform, there was a drop in customer deposits as well as transfer volumes thanks to the drop in crypto prices and activity over the past two quarters. However, both companies have also increased their customer base in the last quarter, which should provide some comfort for the long and still uncertain journey ahead. “While the quarters ahead … remain difficult to predict given the uncertain macroeconomic conditions, the continued additions of institutional crypto-related clients from both banks represent a positive catalyst in the longer term,” JPMorgan analyst Steven Alexopoulos said in a note on Friday . “The current downturn in Silvergate and Signature’s crypto-related business may just be a small blip in the strong growth story of this nascent and rapidly evolving space.” Signature’s crypto deposits fell 12% quarter-on-quarter, but the bank added 116 digital currency clients, bringing its total crypto client base to 1,677. The crypto deposits tend to come from crypto exchanges and stablecoin companies. At Silvergate, crypto deposits fell by 11%, and the crypto client base increased by 92 to 1439. Institutional investors make up 64% of Silvergate’s crypto clients, although they also serve exchanges and other businesses. Sentiment among risk-asset investors has been poor all year, although some are finding solace lately in crypto’s uncharacteristically low volatility. Bitcoin has traded in the $19,000 level for more than a month, and on Friday volatility fell below both the Nasdaq and the S&P 500 for the first time since 2020. However, for exchanges, low volatility often means low trading. volume. Nevertheless, institutions’ appetite for crypto is growing, even if they are delaying making allocations until the market gets more clarity on central bank policy. Alexopoulos noted that with increasing regulatory clarity and institutional adoption, he expects the crypto-related banking and custody space to expand. “With several upcoming bills to be unveiled, 2023 and beyond could see increased growth in this new era of institutional crypto adoption, the beginnings of which can already be seen today,” he said.
