Crypto Trade Market at Risk Due to Banks Shutdown
The digital asset market has experienced a turbulent year, including high-profile blow-ups. The recent shutdowns of SVB Financial Group’s Silicon Valley Bank, Silvergate Capital Corp., and Signature Bank add a new stress level. The shutdown of crypto-friendly bank Silvergate and the closure of its electronic payments platform, the Silvergate Exchange Network, is particularly concerning for the market. For years, moving funds between digital assets and banks was a costly, lengthy, and clunky process, making it difficult for investors to dabble in crypto.
Silvergate established the Silvergate Exchange Network (SEN) in 2017, a platform that allowed hedge funds and crypto firms to transfer funds almost instantaneously, 24/7. SEN’s use was free, making it faster, cheaper, and less risky for trading firms to get in and out of the volatile crypto market. SEN’s absence is already impacting trading, with liquidity for Bitcoin-to-dollar and Bitcoin-to-Tether transactions on some US exchanges dipping between 35% and 45% from the beginning of March to Saturday.
SEN’s closure exposes legitimate crypto businesses to several risks, such as the inability to settle trades with counterparties, pay staff and bills, and accept invoice payments. Without a bank account, crypto companies are vulnerable to risk. Last year, SEN handled $563.3 billion of US dollar transfers, demonstrating its importance to the market. With SEN gone, crypto companies are searching for alternative banking and payment services. Options as robust as SEN are few and far between.
Signature’s Signet ran SEN’s main US competitor, which allowed companies to exchange payments in real-time, but Signature has said it is pulling back on deposits related to crypto companies. Other banks are capping deposits related to crypto companies at 10% to 15% and may charge fees for increased regulatory scrutiny.
Some alternatives are emerging, such as crypto trust companies, which are considering providing SEN-like functionality. BCB Group, which operates Blinc, a payment network for crypto companies popular in Europe, is hoping to launch with three or four banks in the US soon. Despite some alternative networks relying on a diverse slate of banks for support, smaller exchanges, and over-the-counter trading desks may not have as many clients as SEN.
The closure of the banking industry’s Silicon Valley Bank, Silvergate Capital Corp., and Signature Bank has set off a fresh set of stresses in the digital-asset market, leaving billions of dollars worth of crypto trades at risk. The absence of the Silvergate Exchange Network is making trading tougher, and crypto companies are searching for alternatives. While some alternatives are emerging, they may not have as many clients as SEN. The closure of these banks leaves legitimate crypto businesses exposed to several risks, and without a bank account, crypto companies are vulnerable to these risks.
As the crypto industry grows and matures, it’s becoming increasingly clear that banking and regulatory relationships are crucial to its success. The recent bank shutdowns have highlighted just how vulnerable crypto businesses are to sudden changes in the banking landscape.
Therefore, in the wake of these shutdowns, it’s clear that the crypto industry needs more robust and reliable banking and payment solutions. Fortunately, several companies and organizations are stepping up to fill the void left by Silvergate and other banks. As we have mentioned, one of the most promising seems to be the Blinc payment network operated by BCB Group. Blinc is already popular in Europe and offers many features as SEN, including instant fiat-to-crypto conversions and seamless transfers between exchanges and banks. BCB hopes to launch Blinc in the US soon and has received more than 60 inquiries from potential clients.
Another option for crypto businesses is to work with crypto trust companies that already have relationships with banks. These companies hold customer digital assets and can provide many of the same banking and payment services as traditional banks. While these trust companies may not be as well-known as some of the big banks, they offer a viable alternative for crypto businesses that are struggling to find reliable banking and payment solutions. Of course, finding a reliable banking partner is just one piece of the puzzle. Crypto businesses also need to navigate a complex and rapidly-evolving regulatory landscape. As governments worldwide begin to pay closer attention to the crypto industry, businesses that want to succeed will need to stay on top of the latest regulations and compliance requirements.
Despite these challenges, the crypto industry remains one of the most exciting and innovative spaces in the financial world. With new technologies and solutions emerging all the time, it’s clear that the industry has a bright future ahead. As long as businesses can find reliable partners and stay on top of regulatory changes, there’s no reason why the crypto industry can’t continue to grow and thrive in the years ahead.
In conclusion, the recent bank shutdowns have highlighted how vulnerable the crypto industry is to sudden changes in the banking landscape. However, promising alternatives are emerging, including the Blinc payment network operated by BCB Group and crypto trust companies with relationships with banks. As long as the industry can find reliable banking and payment solutions and stay on top of regulatory changes, it has a bright future, as we can see from the immediate recovery in the crypto market just after the weekend crisis.