Bewilderment and Impulsiveness in Crypto Banking: A Tumultuous Landscape
The Unraveling of Crypto-Friendly Titans
In an unexpected turn of events, three major crypto-friendly lenders in the United States – Silvergate Capital Corp, Signature Bank, and Silicon Valley Bank – have crumbled under pressure, leaving crypto firms scrambling for banking partners. This startling development has raised eyebrows among regulators, who now question the resilience of banking models that primarily cater to crypto clientele.
The Domino Effect: Regulators and Liquidity Risks
Not only are regulators expressing concerns, but they’ve also issued warnings to banks regarding liquidity risks stemming from crypto-related deposits. The possibility of swift outflows arises when customers opt to exchange their virtual assets for cold, hard cash.
The Reluctant Embrace: Mainstream Banks and the Crypto Dilemma
As large-scale banks increasingly distance themselves from the crypto world, citing regulatory voids and high-profile collapses, digital asset companies are cornered, forced to pursue smaller financial institutions for support. Banks like FV Bank and Bank Frick have witnessed a surge in account opening requests, while others are carefully vetting potential crypto customers, only engaging with the most reputable firms.
The Concentration Conundrum: A Daunting Task for Smaller Institutions
This bottleneck in crypto banking options poses a significant challenge for smaller entities, burdening them with the expectation of stringent risk management and monitoring. Despite the rallying cry of crypto enthusiasts – “we are going to replace the banks” – Paolo Ardoino, CTO of Tether, concedes that crypto isn’t quite ready to upend traditional banking.
Banking Partners: The Haves and Have-Nots
While prominent crypto companies like Circle, Gemini, and Coinbase maintain ongoing relationships with US banks, smaller crypto start-ups face an uphill battle securing banking partners. Richard Mico, the US CEO of Banxa, a payment and compliance infrastructure provider for crypto, expresses concern over the scarcity of available banking partners, particularly for smaller and less-established ventures.
