Signature Bank Shutdown Delivers Another Blow to the Crypto Industry

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(Bloomberg) – The closure of Signature Bank, a lender that counted a number of crypto firms among its clients, marks another major setback for digital assets as the industry is increasingly cut off from the banking system.

The Treasury Department said Signature Bank was shut down by New York state regulators on Sunday and depositors would have access to their money on Monday.

The shutdown comes shortly after the twin collapses of Silvergate Capital Corp. and Silicon Valley Bank. All banks have been, at least at some point, counted among the most crypto-friendly US financial institutions.

Signature had begun withdrawing from digital assets following the FTX exchange explosion, but still had $16.5 billion in crypto-related client deposits as of March 8. Signature and Silvergate have also enabled fast payments between clients like hedge funds and exchanges, supporting the liquidity of digital assets.

Coinbase Global Inc., the largest crypto exchange in the United States, said late Friday that it had a balance of $240 million in the bank. Paxos Global, which previously partnered with Binance on the BUSD stablecoin, said it has $250 million in Signature. In the tweet, Paxos said it holds private deposit insurance well in excess of our cash balance and FDIC limits per account.

Crypto has been fundamentally debanked, especially for fast 24/7 payment rails, said Austin Campbell, adjunct professor at Columbia Business School. He added that the most likely solution for crypto is to look to other jurisdictions in the future.

withdraw

Signature ran Signet, a payment network that allowed commercial crypto customers to make real-time dollar payments anytime, seven days a week.

After rival network Silvergates SEN shut down in early March, Signet was the only game in town for many crypto clients when it came to quickly sending payments to exchanges and vendors, or meeting payroll. LedgerX, a crypto derivatives platform, previously instructed customers to send domestic wire transfers to Signature instead of Silvergate.

Circle Internet Financial Ltd., the issuer of the USDC stablecoin, said it has $3.3 billion at Silicon Valley Bank and maintains transaction and settlement accounts for USDC at Signature. Circles CEO Jeremy Allaire tweeted that the company would not be able to process USDC minting and redemption through Signet and would rely on settlements through BNY Mellon.

Seal system

Coinbase integrated Signet to allow customers to instantly transfer funds last October. In 2021, the TrueUSD stablecoin integrated with Signet for instant settlements.

Fireblocks, a digital asset custody, transfer and settlement platform, said it currently has no exposure to Signature Bank.

If Signet goes down, users may find it difficult to enter and exit exchanges quickly, which has a huge impact on the liquidity of the crypto market.

Already, the ease of exchange for Bitcoin-to-dollar and Bitcoin-to-Tether transactions on some US exchanges fell between 35% and 45% from early March to Saturday, according to research firm Kaiko. The collapse of signatures is likely to increase the impact.

The prices of major digital assets rose on Monday alongside a jump in US stock futures. US regulators moved to protect depositors’ funds following the collapse of Silicon Valley Bank and introduced a new financial safety net, bolstering investor sentiment.

Bitcoin, the largest token, rose around 5% and traded at $22,530 as of 9:46 a.m. in Singapore on Monday. Ether, ranked second, climbed more than 3%. Smaller tokens like Solana and Avalanche were also higher.

For crypto market prices: CRYP; for the best crypto news: TOP CRYPTO.

–With help from Muyao Shen and Beth Williams.

(Updates with comment from Fireblocks in 11th paragraph.)

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