Signature Bank Explodes, US Crypto Frantically Seeks Banking Services – Amy Castor

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By Amy Castor and David Gerard

“In five years, a number of banks will no longer be around because of blockchain technology.”

~ Joseph DiPaolo, CEO, Signature Bank, 2018 All My Banks Gone

Crypto gets its wish – freedom from the corrupt and dirty fiat currency system! Silvergate and Signature, the two major crypto banks in the United States, have disappeared.

After the collapse of Silicon Valley Bank on Friday, March 10, US regulators became concerned about the concentration of large Signature deposits that exceeded the FDIC’s insurance limit. Signature customers have noticed this too. They withdrew billions of dollars in deposits from Signature later the same day.

(Morning Brew has a good video explaining the process.) [Twitter, video]

New York regulators shut down Signature on Sunday, March 12. Shareholders are wiped out — but all depositors, even those whose deposits exceed the FDIC’s $250,000 threshold, will be refunded. [Federal Reserve; NYDFS; FDIC]

The New York Department of Financial Services took control of Signature Bank pursuant to Section 606 of the New York Banking Law. Frances Coppola suspects that the NYDFS acted under clauses (b), (c) and (d): the bank was conducting its business in an unauthorized or unsafe manner, it was in an unsound or unsafe condition to conduct its activities, and she could not with the security and opportunity to continue the business. [FindLaw; Twitter]

Signature had 40 branches, total assets of $110.36 billion and total deposits of $88.59 billion at the end of 2022, making it the third largest banking meltdown in US history. United.

Ahead of the announcement, President Biden met Sunday afternoon with Treasury Secretary Janet Yellen, Federal Reserve Vice Chairman Lael Brainard and White House Economist Jared Bernstein. Biden ordered them to act, and the measures were announced just after 6 p.m. [FT]

The closure came as a surprise even to the bank’s management – ​​who only learned about it just before the public announcement. They were all fired. [Bloomberg]

USDC can buy this for a dollar

After a weekend break, Coinbase resumed allowing USDC redemptions on Monday, and USDC regained its peg to the dollar. [Twitter]

Circle says no USDC reserves were held at Signature — but the company was dependent on Signature’s real-time payment rail, Signet. This left Circle scrambling at the last moment to set up a new bank. From now on, Circle will rely on BNY Mellon and on a new partner: Cross River Bank. [Twitter, archive; Twitter, archive]

Cross River, based in Fort Lee, NJ, is another “crypto first” bank. We are sure it will work very well. [Techcrunch, 2022]

Silvergate and Signature operated inter-exchange settlement systems specifically for crypto exchanges – SEN at Silvergate and Signet at Signature. These allowed exchanges to transfer money between them at any time of the day or night.

A guy told CoinDesk that Signet was still up and running to some extent on Monday. Although Circle tried it and couldn’t use it. [CoinDesk]

Coinbase had approximately $240 million in corporate cash at Signature, but expects to recover the funds in full. [Twitter, archive]

Paxos said it holds $250 million of its stablecoin collateral reserves at Silvergate, and that it “holds private deposit insurance well in excess of our cash balance and FDIC limits per account.”[Twitter]

Freed from the leaden weight of the old bankster system

With the shutdown of Silvergate and now Signature, crypto has effectively been shut out of the US banking system.

Exchanges, stablecoin issuers, and crypto hedge funds are all frantically looking for new banks, even outside of the United States. [Bloomberg]

Crypto companies are eyeing other banks and payment processors, including Mercury, Brex, MVB, Western Alliance, Synapse and Customers Bank – the latter of which currently holds some of the reserves for USDC and Paxos stablecoins. Or maybe JPMorgan Chase will take their calls. [The Block]

What happens next

These FDIC interventions are a warning shot for all other banks in the United States. Straighten your books and don’t specialize in bad client bases – or the FDIC will rush in, shoot you in the head and sell your organs.

Crypto is one such clientele. Crypto customers were already highly correlated with money laundering and crime – and now crypto is correlated with hot money flowing in and out by the billions a day. This is a dangerous type of customer for any bank that specializes.

This is terrible news for crypto. Losing your bank tracks is the worst thing that can happen to a crypto business. Unless the crypto industry can find reliable US dollar payment rails that regulators will accept, crypto in the US is dead as a financial product.

A few smaller banks will step in to pick up where Silvergate and Signature left off. But we highly doubt the US will let these banks replace Silvergate and Signature.

Good thing crypto is uncensorable and unstoppable and doesn’t need banking.

More good news for bitcoin

It’s not just a liquidity issue – Coinbase has removed all Binance USD trading pairs. The only place you can turn BUSD into dollars now is Paxos itself, the issuer of BUSD. This requires you to pass KYC and AML to US standards. A lot of Binance traders can’t do this – so they buy BTC on Binance and move it around instead. This drives the number up, so that’s definitely good news for bitcoin. [CoinDesk]

Paysafe, Binance’s UK payment processor, shut them down, effective May 22 this year. “We have concluded that the UK crypto regulatory environment is too difficult to offer this service at present and therefore this is a prudent decision on our part taken with great caution.” You don’t say. [Bloomberg]

HMRC in the UK asked Coinbase to provide information on all users who received a payment over £5,000 in the 2021 tax year. HMRC demanded the same from Coinbase in 2020 If you made money on Coinbase in the UK in the bubble, you might want to double-check whether you need to correct your 2021-2022 tax return. These state boots are not going to pay for themselves. [circumstances.run; Twitter, 2020]

The United States Department of Justice is investigating the collapse of Terra-Luna. [WSJ]

Three Arrows Capital’s Kyle Davies has a very particular understanding of 3AC’s role in the crypto meltdown. “If you think about it, why are people angry? It has nothing to do with me actually. They are angry that the market has gone down. As far as we are concerned, we have no regulatory action anywhere, no legal action. There’s nothing, so I know they’re clearly not mad at anything. They’re angry because maybe the supercycle didn’t happen, I don’t know. Something like that,” Davies said from his new office in an extradition-free country. [CoinDesk]

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