Why did a crypto hedge fund turn to Swiss banks?

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With $400 million in assets under management, a crypto fund manager is turning to Swiss banks to fill the void left by the collapse of a crucial payments network run by struggling US lender Silvergate Capital.

Silvergate’s 24/7/365 real-time network was used by Digital Asset Management to transfer money to and from Coinbase Global Inc.

But major exchanges like Coinbase, Crypto.com, and Gemini no longer support Silvergate.

On Friday, Silvergate Capital Corp announced that it had made the “risk-based decision” to shut down the Silvergate Exchange Network, its cryptocurrency payment system.

“Effective today, Silvergate Bank has made a risk-based decision to discontinue the Silvergate Exchange Network (SEN). All other deposit-related services remain operational,” Silvergate said in a statement posted on its website.

Subsequently, prominent cryptocurrency companies such as Coinbase Global and Galaxy Digital severed their ties with Silvergate as their banking partner.

Stablecoin issuers Paxos and Circle, CBOE digital asset exchange, and cryptocurrency exchanges Bitstamp and Gemini have also suspended their partnerships with Silvergate.

It came just two days after the digital asset-focused bank expressed skepticism about the network’s long-term survival.

Richard Galvin, co-founder of Digital Asset Capital Management, said in an interview on Friday, “There are banks that handle crypto transactions, but they’re not crypto-focused, unlike Silvergate.”

“It may take some time to find a banking partner. We are talking to some Swiss banks,” he added.

Galvin said concerns over Silvergate have “raised the level of difficulty” of moving money to cryptocurrency exchanges. He did not name any particular financial institution.

But he said the process could take longer than usual because the Silvergate network previously facilitated the rapid transfer of money between accounts, exchanges and OTC trading desks.

Many traditional banks remain cautious about the volatility of digital assets and possible regulatory heat, which has long been a problem for the cryptocurrency industry.

The fallout from the FTX exchange in November crushed Silvergate’s attempts to fill the hole.

The collapse of Silvergate’s main customer, FTX, caused a rush of customers withdrawing their money from the bank last year. The bank announced this week that it was assessing its long-term viability.

Galvin said: “We were already taking proactive steps to reduce our deposits in Silvergate and find new bankers.”

Many Swiss financial institutions deal in digital assets, including Sygnum Bank AG and SEBA Bank AG. Capital Union Bank in the Bahamas and Deltec Bank & Trust Ltd. in the Bahamas are both well known for their crypto-centric strategies.

Some smaller banks in the United States have jumped on the digital currency bandwagon in hopes of rapidly increasing their deposits and gaining access to a free source of funding.

There was an overhaul after the collapse of FTX.

For example, New York’s Signature Bank said in December it was exiting the cryptocurrency business as a whole, which could mean the loss of up to US$10 billion in deposits from customers who use cryptocurrency. digital assets.

Sydney-based Galvin said: “We believe in diversifying our risk and have a number of banking partners.”

Related: Silvergate Bank: What the Market is Telling Us

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