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Silvergate and SVB bring down the crypto industry

After a turbulent year, Silvergate Capital, the holding parent company of U.S. cryptocurrency-friendly bank Silvergate Bank, announced at the close of U.S. stocks last Wednesday that it will orderly wind down its operations and voluntarily liquidate bank assets in accordance with regulatory procedures.

Silvergate's annihilation has spread to more traditional financial institutions, triggering a bigger liquidity crisis. Last week, on March 8, US time, Silicon Valley Bank (SVB), one of the oldest and cryptocurrency-friendly banks, announced that it was in financial trouble. Last Friday, the California Department of Financial Protection and Innovation announced that it had officially closed Silicon Valley Bank, and the FDIC was named receiver of the bank and took control of its deposits. This marked the official collapse of the bank, making it the largest bank failure in the United States since the global financial crisis. In this crisis, there are still more small and medium-sized banks losing their foothold in the wave of interest rate hikes by the Federal Reserve.

The collapse of Silicon Valley Bank (SVB) has caused global investors to panic, and many well-known blockchain venture capitalists (VC) hold assets worth more than $6 billion in SVB. Despite the U.S. government’s intervention, promising depositors at Silicon Valley Bank to get their deposits back, the value of the crypto banking entity’s equity and debt was almost wiped out. On November 16, 22, Block.one and its CEO held a total of about 16.8% of Silvergate's shares, and currently theoretically have a floating loss of over US$70 million in Silvergate stock investment

The annihilation of SVB and Silvergate, the two federally insured members of the Federal Reserve System, also caused many ripple effects in the cryptocurrency ecosystem, and a crisis of confidence ensued. Uncertainty about deposits led to USDC decoupling over the weekend, as low as 0.889.Crypto-friendly banks die, Silvergate explodes, Abra suffers - ODAILY 

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Signature Bank - the second financial institution to be closed after Silicon Valley Bank

U.S. regulators announced late last Sunday that the closure of Signature Bank, a regional bank headquartered in New York, and the U.S. Treasury, Federal Reserve, and FDIC said in a joint statement: Systemic risk exception, the bank was closed today by its state charter agency."

But why is Signature Bank still shut down by regulators? According to the Wall Street Journal, as early as January at the beginning of the year, the U.S. Federal Home Loan Banking System (FHLB) provided a total of more than $13 billion in loans to the two largest cryptocurrency banks, Signature Bank and Silvergate, to ease the liquidity caused by the surge in withdrawals. crisis impact. It is reported that the entity provided nearly US$10 billion in loans to Signature Bank in the last quarter of 2022, making it one of the largest borrowing transactions in the banking industry in recent years. In addition, Silvergate has received at least $3.6 billion in loans from FHLB. It can be seen that the liquidity crisis of these two well-known crypto-friendly banks has already begun to emerge after the FTX thunderstorm incident.

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The cryptocurrency industry is deeply in the fiat currency liquidity crisis

The first point worth highlighting is the Silvergate Exchange Network (SEN), which has played a key role in facilitating the transfer of non-blockchain funds between large investors and cryptocurrency exchanges. Silvergate launched SEN in 2018, and the platform saw rapid mass adoption, with transaction volume reaching nearly $800 billion for the full year of 2021. Almost every major U.S.-based cryptocurrency exchange became a client of Silvergate and began moving funds through the network. For cryptocurrency traders, the technology appears to have been a game-changer, serving as a convenient bridge between traditional finance and the cryptocurrency ecosystem.

With Silvergate entering voluntary liquidation last week, JPMorgan had predicted customers would migrate to Signet Bank's Signet payments network. Cryptocurrency companies can use APIs to incorporate the Signet network into their platforms. However, Signature Bank is currently not immune to this.

R 3 PO believes that as a nascent cryptocurrency market infrastructure, the core value of the blockchain transaction network is huge, and the suspension of the SEN platform and the Signet payment network will undoubtedly cause further damage to the current tight liquidity in the cryptocurrency market. But for other competing banks, this is undoubtedly a potential opportunity. They have the opportunity to step in quickly at this time to fill the vacancy and dominate the cryptocurrency business. Now there are only Customers bank and Sygnum left in the global encrypted bank in the United States, and there are seba bank, deletc bank and BCB in other regions.

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The encryption industry actively rescues itself, and the crisis breeds vitality

Circle, which is at the center of public opinion, issued a statement today saying: "100% of our deposits in SVB are safe and will open for business tomorrow. 100% of USDC reserves are also safe and reliable, and we will complete the transfer of the remaining SVB cash to BNY Mellon. As previously mentioned, USDC liquidity operations will resume when banks open tomorrow morning. With the closure of Signature Bank announced tonight, we will not be able to process minting and redemption through SigNet, and we will rely on BNY Mellon settlement .As soon as tomorrow we will be introducing a new transaction bank partner with automated minting and redemption capabilities. We are committed to building robust and automated USDC settlement and reserve operations with the highest quality and transparency."

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Copyright statement: If you need to reprint, please add the assistant WeChat to communicate. If you reprint or wash the manuscript without permission, we will reserve the right to pursue legal responsibility.

Disclaimer: There are risks in the market, and investment needs to be cautious. Readers are requested to strictly abide by local laws and regulations when considering any opinions, viewpoints or conclusions in this article. The above content does not constitute any investment advice.