Banking Crisis Contagion Spreads to Crypto

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Crypto literally went off the rails.

But not in the way industry observers and critics might have thought or expected.

On the contrary, the developing banking crisis that brought down Silicon Valley Bank (SVB) and Signature Bank, and forced Silvergate Bank to self-liquidate, has also crippled the digital asset industry’s main payment channels.

Almost every household name in crypto and many small businesses have relied on Silvergate and Signature as their primary on-ramps to traditional banking. Now, without these banking partners, crypto companies are scrambling to find new ways to work with fiat currency and are accepting dollar deposits in exchange for services or in exchange for tokens.

SilvergatesSilvergate Exchange Network (SEN) and Signature BanksSignetplatforms have for years been invaluable to the crypto industry, enabling 24/7/365 payments in real time outside of traditional banking hours and without the use of more traditional and relatively restricted payment services like the Federal Reserve’s Fedwire. or ACH transfers.

To complicate matters, the FDIC (Federal Deposit Insurance Corporation) is supposed to signal that any bidder attempting to remove Signature Bank from its receivership must agree to relinquish all crypto business, according to a Reuters report.

While hope is eternal, as an FDIC spokesperson told Reuters after the release, the agency would not require the crypto business to be divested as part of a sale.

It remains unclear if a future buyer would decide to reinstate the Signatures Signet platform.

Read more: The Silicon Valley bank story no one told

It’s hard to overstate how critical Signet and SEN were to the business structures of many major crypto firms.

Their closure is also impacting digital asset traders and the exchanges that support them, as they no longer have the ability to release their bets outside normal banking hours, a ripple effect that observers say , could add an extra level of volatility to the already turbulent crypto markets. .

Silvergate shut down SEN on Friday March 3, before announcing the voluntary liquidation of its business on Wednesday March 8.

The New York financial regulator took over Signature on Sunday, March 12, ending the viability of the Signet platform as an ongoing service.

Turned Tables: Crypto Needed Saving from the Banking Sector

Following the liquidation of SVB, Silvergate, and Signature, crypto firm Circle, the issuer of the USDC stablecoin, processed $3.8 billion in buybacks, where investors swapped their stablecoin tokens for Monday dollars (13 March) to Wednesday (March 15) of this week.

The USDC, which aims to maintain a stable 1:1 parity with the US dollar, broke that parity and fell to $0.88 after Circle revealed that billions in stablecoin reserves were held during the collapse of the SVB, prompting investors to buy back their tokens on broader market fears.

Circle CEO Jeremy Allaire announced on Sunday, March 12, that Circle will begin relying on settlements through BNY Mellon, limiting redemption requests to traditional banking hours and not banking flexibility crypto assets anytime and anywhere. anywhere.

We have eliminated nearly all of the backlog of minting and redemption requests for USDC, Circle said in a statement.

The company has established a new relationship with crypto-enabled bank, Cross River, to bank its reserves of USDC tokens and support the minting and redemption process.

Trust, security and 1:1 redeemability of all USDC in circulation are of paramount importance to Circle, even in the face of banking contagion affecting crypto markets, Allaire said.

Government conspiracies

Signature Bank board member Barney Frank, the former U.S. lawmaker whose name appears on Dodd-Frank banking regulations, said in a March 12 interview that Signature Bank could have survived, but regulators wanted to send a message to keep people away from crypto.

The closure of two major crypto banks, one voluntarily and the other involuntary, in the same week has fueled wider speculation that the government is targeting the digital asset industry.

This coordinated behavior seems disturbingly reminiscent of Operation Choke Point, which as you know was an Obama administration initiative, where federal regulators pressured financial institutions to shut down financial services to certain licensed and legally operating industries simply because certain regulators and policymakers have disadvantaged those industries, reads a letter sent to Federal Reserve Chairman Jerome Powell by a group of Republican senators, led by Bill Hagerty of Tennessee.

In a statement relayed by Reuters, the New York State Department of Financial Services (NYDFS), which placed Signature in FDIC receivership, said the decisions made over the weekend had nothing to do with it. do with cryptography.

Despite all the unfortunate speculation, the failure of Signature Bank and the self-liquidation of Silvergate are more a reflection of concentrated fragilities in their operating models than of a coordinated attack.

Yet one thing remains abundantly clear: the crypto industry, whether by accident or design, is facing a banking crisis in the United States.

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See more in: banking, bitcoin, circle, connected economy, cryptocurrency, digital payments, editor’s pick, news, regulation, SEC, Signature Bank, silicon valley bank, silicon bank updates Valley, Stablecoin, TechREG, USDC

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