#29 The impact of bank closures on crypto

How crypto lost 3 of its closest banking partners

Yesterday I wrote about the collapse of the Silicon Valley Bank. It happened on Friday, shortly after the shutdown of a crypto bank Silvergate. Well... yesterday, Signature bank - which had a large crypto holding - was also shut down by regulators. In a matter of 5 days, the crypto industry lost 3 of its closest banking partners.

Silvergate and the Signature bank were crucial for the crypto industry. They provided payments infrastructure for crypto exchanges to process fast payments 24/7/365. Crypto exchanges like Coinbase used these payments rails to allow customers move money in-n-out of its exchange instantaneously. The closure of these banks means that customers might have to temporarily send funds through wires or ACH.

While the Silicon Valley Bank didn't provide crypto payments infrastructure, it was the main banking partner for many crypto companies such as Circle, Ripple, Avalanche, Yuga Labs, and others. The impact of the closure was so big that it caused stablecoin USDC to briefly depeg from $1 following the news that its issuer, Circle, had $3.3 billion in SVB. The stablecoin is back to being stable and Circle moved its capital to BNY Mellon.

These bank closures essentially mean that crypto has been de-banked, especially for fast 24/7 payments. Most likely, it's a temporary event. Big banks like Goldman Sachs, BNY Mellon and State Street are still supporting crypto companies along with smaller players like Brex, Mercury, and Cross River. While crypto didn't cause this crisis, it was definitely impacted in a big way.