Jamie McNeill
The collapse of Silvergate, Silicon Valley and Signature banks has made many of the implosions of 2022 seem like child’s play.
The scale of these deteriorations has dwarfed the size of failures in companies like Celsius and FTX – with the meltdown of Silicon Valley Bank the second-largest collapse of a US bank in history.
The collapses have strong implications for the crypto sector. As much as crypto aims to be an alternative to the prevailing financial system, there are still many aspects of the industry that are dependent on the banking sector, as the de-pegging of USDC over the weekend demonstrated.
New Banks will Compete to Offer Services to Crypto Industry
Despite the banking troubles, there are many joining the industry in order to compete with one another with the goal of offering banking services to some of the largest crypto exchanges – particularly now that there are huge holes to fill.
Brett Harrison, the former FTX president and founder of Architect, told The Scoop podcast that there is a large appetite to get involved in the sector.
He has no doubt that the current banking situation will soon be resolved as exchanges find new partners.
Three of the largest U.S. banks that banked crypto businesses were taken out. There are still a few that exist though:
– Customers Bank
– First Foundation Bank
– Cross River Bank
– Sutton Bank
– Evolve Bank & Trust
– BankProv
– Quontic Bank— Larry Cermak (@lawmaster) March 13, 2023
The failure of the three most significant banking giants in the crypto sector hasn’t completely thwarted the industry, but it has made the journey somewhat bumpier.
In the US, Mercury, Brex and Customers Bank are all vying to improve upon their relationships with crypto exchanges and to establish new ones, while Sygnum and Seba are trying to build on these outside of North America.
Competition to Replace the SEN Heats Up
The main issue that the industry is trying to ameliorate at the moment is that crypto no longer has the SEN (Silvergate Exchange Network), which allowed large exchanges to trade with one another seamlessly.
Coinbase has mentioned that this would have been problematic if they did not believe that the issue could have been resolved but, thanks to the appetite in the banking industry to attract new clients, it hasn’t been an issue and the exchange will be able to continue to process fiat deposits and withdrawals 24/7.
US Regulators’ Lack of Clarity Will Leave US Behind
As the current hegemon in the banking sector, the United States has a strong incentive to try and maintain the current status quo – but in doing so they may hamper innovation in the crypto sector to their own detriment.
Many countries, such as El Salvador, have already benefitted enormously from their clear stance on the cryptocurrency industry
One of the main issues plaguing the state of crypto regulation in the US at the moment is the fact that the Commodities and Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) are currently embroiled in a turf war over which assets should be regulated by whom.
In countries such as the UK, there is no clear distinction between the two: the Financial Conduct Authority (FCA) regulates both of these sectors, meaning that the lack of internal skirmish allows the UK government far more flexibility and adaptability, and the industry can be regulated in a far more effective way.
Already, there are a series of firms in the UK lining up to build a replacement to the SEN, a crucial part of crypto banking infrastructure that has been defunct since the collapse of Silvergate Bank.
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This article was written for Business 2 Community by Jamie McNeill.
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