The week that broke the bank for crypto

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Every once in a while there is a seismic week that rocks the crypto.

Scratch that.

Seems like every week these days is a seismic week rocking crypto.

The ecosystem continues to evolve, but in recent days it feels like evolution is being driven by extinctions, by crumbling business models, by looming regulations that dictate what people and businesses can’t not do (and are less about what people can do) when it comes to using digital currencies, holding them, storing them, and whether it’s all really safe.

This time around, the Silvergate Capitals crisis heralds the fact that the bond between cryptocurrency and traditional banking is frayed, and perhaps may never be cemented, at least not if regulators are successful.

As we reported here, Silvergate has acknowledged that a series of bank runs and its efforts to raise cash have raised concerns about its very viability. It turns out that offering traditional bank deposits, mortgages, and loans becomes harder to do when the fortunes of corporate clients depend on volatile cryptocurrencies, which in turn are subject to the great unknowns of scrutiny. regulatory.

This regulatory scrutiny is increasingly coming to Silvergate, yes, but the impacts will emanate far beyond the fate of this single company.

Shot through the arc

The shot was fired through the bow earlier this year. In a joint statement in January, the Federal Reserve, the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. warned of the risks of significant volatility in crypto-asset markets, the effects of which include potential impacts on deposit flows associated with crypto-asset companies and the risk of contagion within the crypto-asset sector. assets resulting from the interconnections between certain crypto-asset participants, including through opaque lending, investment, financing, servicing and operating arrangements. These interconnections may also present concentration risks for banking organizations exposed to the crypto-asset sector.

The best way to end these concerns may be to close the activities themselves. This means moving banks away from a full embrace of crypto firms. Crypto companies themselves may be sensing a coming crackdown, or at least fearing they can access their holdings. Elsewhere, we noted this week that four crypto-linked companies Coinbase, Circle, Gemini and Paxos severed ties with Silvergate.

There are other signs that traditional banking is being curtailed by regulators, this time in the area of ​​investment management.

As reported here, the Securities and Exchange Commission (SEC), through remarks by Chairman Gary Gensler, said investment advisers should be wary of cryptocurrency trading and lending platforms and predictive analytics Datas.

Based on the general operation of crypto trading and lending platforms, investment advisers cannot rely on them today as qualified custodians, Gensler said in prepared remarks. To be clear: just because a crypto trading platform claims to be a qualified custodian does not mean that it is. When these platforms fail, something we’ve seen time and time again, investors’ assets have often become the property of the bankrupt company, leaving online investors in bankruptcy court. The question continues to arise as to who can be a qualified goalkeeper.

In the UK, banks HSBC and Nationwide Building Society have announced that they are banning cryptocurrency purchases using credit cards for their retail customers and tightening restrictions on cryptocurrency card purchases. debit to a daily limit of $6,000.

The promise, back when bitcoin hit $64,000, when Dogecoin was going to the moon, and SBF/FTX were shorthand acronyms for cryptos promise to reinvent finance and banking is suddenly far and wide.

PYMNTS Data: Why Consumers Are Trying Digital Wallets

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See more in: banking regulation, banking, cryptocurrency, federal reserve, main article, news, regulations, Saturday article, SEC, Securities and Exchange Commission, Silvergate Capital

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