What Signature Bank Failure Means for Crypto, According to Experts
The collapse of Silicon Valley Bank and the subsequent measures regulators took to avoid more damage on March 12 due to fears of contagion prompted the FDIC and the Federal Reserve to close crypto-friendly bank Signature Bank because of a “similar systemic risk.”
“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole,” the regulators said in a joint statement.
This comes as another blow to the crypto community, a few days following the collapse of industry heavyweight and crypto-friendly bank Silvergate, which announced on March 8 that it was winding down operations and liquidating.
At the time, many in the industry saw Signature as the last resort for crypto companies to be able to have ties to traditional financial institutions, and they believed the bank most likely would take over as the go-to bank for the digital asset industry.
Effect of Bank Collapses
“The banking failures will likely have negative consequences in the long term,” said Petr Kozyakov, co-founder and CEO at global payments infrastructure platform Mercuryo. “Besides a potential decrease in the digital asset market capitalization, recent events will likely undermine trust in crypto-friendly financial institutions, slowing down the development of the relationships between TradFi and cryptocurrency players.”
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Kozyakov added that another issue is that both Silvergate and Signature were leading providers in their fields. Now, digital asset projects must find new banking partners.
“Their failures created a crucial gap that could complicate access to crypto,” Kozyakov said. “With SVB holding over $5 billion for large crypto VCs, its collapse could also harm startup investments.”
For some, this has reignited the debate about whether crypto banking should be separated from standard banking or whether it should be integrated into the existing financial system.
An Attack on Crypto?
Some in the industry question regulators’ motives in shutting down Signature — one of the latest financial bastions of crypto-friendliness.
According to Dave Weisberger, CEO and co-founder of CoinRoutes, the circumstances following the shutdown of Signature are very unclear, and it seems as though authorities have used the broader crisis facing the banking system as a pretext for taking out one of the few remaining crypto-focused banks in the United States.
Weisberger said, “This was done so abruptly — and with relatively little communication as to why — that many in the digital asset industry are concerned that this was done intentionally to dissuade people from investing in crypto.”
The sentiment was echoed by many. Ryan Selkis, CEO of crypto research firm Messari, tweeted: “Crypto’s banking rails have been effectively shuttered in less than a week.”
Money Moving From Banks to Bitcoin?
Meanwhile, amid this doom and gloom, there is a silver lining as several experts note that another (unintended yet welcomed) consequence is the fact that this situation underscores the importance of the asset.
“I believe we will look back at this event as a seminal moment in the history of Bitcoin,” Weisberger said.
For the short term, the impact will certainly be negative for banking rails in the crypto industry; but, from a holistic point of view, Bitcoin is poised to thrive as people move their funds away from banks and into Bitcoin, said Danny Oyekan, founder and CEO of digital investment firm Dan Holdings and digital asset exchange Blockfinex.
“Indeed, Bitcoin’s very creation was a result to provide safe haven for these kinds of financial crises,” Oyekan said. “And so the value proposition for Bitcoin is only going to increase because of what’s happening. I personally have a lot of friends around the world moving their assets into crypto as fast as they can.”
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