Two banks that had warmed up to crypto and supported tech startups have buckled in under a week. In a welcome move, crypto prices rallied over the weekend when the federal government came in to guarantee depositors’ funds in the two banks.
Silvergate Capital, which is a cryptocurrency central lender, announced on Wednesday that it is closing its operations and liquidating. The Silicon Valley Bank, a lender to most technology startups, crashed on Friday after depositors panicked and cashed out more than $42 billion after the bank announced its need to raise $2.25 billion to balance its books. Signature, a much larger entity than Silvergate, had a notable crypto focus and was taken over by banking regulators on Sunday.
Silvergate and Signature are the two major banks favored by crypto companies, and most U.S. venture startups banked with Silicon Valley Bank, including some digital asset enterprises as well as crypto affiliate venture capital funds. The federal government came in over the weekend to cover all SVB and Signature client deposits, boosting confidence and causing a little uptick within the crypto markets. Bitcoin and Ether shot up by 10% within the next 24 hours.
Castle Island Ventures’ Nic Carter points out that the willingness of the government to shore up these banks proves that the government is back to providing liquidity and resuming the monetary policies that have aided cryptocurrencies and other asset classes.
Many of last year’s crypto issues emanated from the stablecoin sector, and TerraUSD was the first to collapse last May. During the weekend, the stablecoin sector was hit again as USDC dropped below 87 cents when the issuer, Circle, confessed to banking some $3.3 billion with SVB. DAI, another virtual currency, traded at 90 cents. These events prompted some traders to swap their USDC and DAI to acquire tether whose market value stands above $72B. The stablecoin market gained ground after Circle published a blog post on Sunday saying it will take responsibility for any shortfalls using corporate resources.
Mike Bucella, an executive and crypto investor, says many within the industry are circling toward Mercury and Axos, the other two banks catering for startups. Circle has gone public declaring its shift to BNY because of the imminent closure of Signature Bank.
It is tough for crypto banking within the North American space, but there are challenger banks willing to pick up the slack, says Bucella. Industry players such as Bit Mining Ltd. (NYSE: BTCM) would be relieved if normalcy returns to the crypto space in the wake of the collapse of these major banks serving blockchain clients.
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