US Banking Cutoff opens up opportunities for crypto in Europe
While crypto firms in the US are scrambling for alternatives to Silvergate and Signature Bank, Europe presents itself with an opportunity to capitalize on the disaster.
Europe has at times struggled to keep up with the US in terms of crypto innovation. Whether it’s via stablecoins, trading volume, or adoption, it’s felt like the US has been the center of crypto since its inception.
Conor Ryder is a research analyst at a leading crypto data firm Kaiko.
But the longer it takes for US banks to declare that they are open to crypto business – i.e. receptive to taking in some of the millions of dollars once parked at Silvergate – the more likely it is that crypto firms may choose a place like Europe and more regulatory clarity and simpler fiat payment rails.
Regulatory clarity in Europe in the form of MiCA, the Markets in Crypto-Assets Act, draws a stark contrast to the ambiguity in the US, where firms face new regulatory headwinds seemingly every day. This creates an increasingly challenging environment for the operation of any crypto organization. For new and existing market participants, this will be a significant consideration.
In addition, US politicians seem to be doing their best to stifle dollar ramps into crypto, leaving the door open for the rest of the world to gain a competitive advantage over the US
In terms of trading, the good news for investors is that the crypto industry has become increasingly less dependent on fiat currencies in recent years. In fact, the percentage of market share of all volume on centralized exchanges for stablecoins just hit an all-time high following the Silvergate issues last week, as investors continue to favor stablecoins over traditional fiat. In the last year alone, stablecoins have risen from 79% of volumes to over 90%, commanding the vast majority of volumes on exchanges.
Less reliance on fiat means that the bank disruption in the US actually directly hurts crypto investors less. Crypto investors are increasingly using stablecoins as a means of transactions, but the businesses behind the platforms traders use are not. It is these institutions themselves that will feel the brunt of a dollar (USD) cutoff first.
Not having access to a US bank means that businesses such as exchanges have to change their approach to the services they can offer. Take the business hours: If an exchange does not have access to a 24/7 USD payment network, it is well within the realm of possibility that US exchanges can only serve clients during US business hours. In this scenario, US-based mutual funds may also suffer due to the opportunity cost of losing out-of-hours trading strategies.
However, Euro volumes show that one region’s pain is another’s gain. Early indicators are that the euro could be a big winner from a US cryptobank disruption, with volumes increasing for the BTC-EUR pair as the Silvergate issues followed. The Bitcoin-euro pair reached its highest level of market share against the US dollar ever, rising to 21% of BTC volumes last week from 7% in November.
The question now is will a US bank stand up and raise its hand and welcome crypto deposits? If the answer is no, not for a while, we may see the trend of rising euro volumes continue.
Whether a bank will raise its hand in the US is the million dollar question. The larger banks have no incentive to take on crypto deposits right now, especially with the consolidation of larger banks we are seeing in the banking sector.
It is the smaller banks that need to attract a new wave of deposits as they struggle to compete with the likes of JPMorgan Chase in an increasingly oligopolistic market. In an ideal world, several smaller banks would open their doors to crypto, spreading the risk more evenly across a few different banks as opposed to all crypto deposits being concentrated in a few banks, as was the case before.
However, the smaller banks will see Silvergate and Signature as a stark example of banks that failed to diversify their deposits to a level that ensured some protection against a bank run, and it may be a while before we see the next batch of banks open. their doors to crypto.
It provides a window of opportunity for Europe, and the euro, to gain relevance in an industry they have lacked recently.