Signature, SVB, Silvergate Flaw: Effects on the Crypto Sector

  • Silvergate and Signature were the two main banks for crypto companies, while Silicon Valley Bank had a lot of crypto startups and VCs as clients.
  • The failure of the cryptobank trifecta spilled over into the stablecoin market over the weekend.
  • By Sunday night, when the Feds stepped in to freeze deposits at Signature and SVB, the cryptocurrencies were running and the stablecoins had regained their pegs.

A man walks into Signature Bank in New York City on March 12, 2023.


Two of the banks most friendly to the crypto sector and the biggest bank for tech startups all folded in less than a week. While cryptocurrency prices rose on Sunday night after the federal government stepped in to provide a backstop to depositors at two of the banks, the events sparked volatility in the stablecoin market.

Silvergate Capital, a key lender to the crypto industry, said Wednesday it would wind down operations and liquidate its bank. Silicon Valley Bank, a major lender to startups, collapsed on Friday after depositors withdrew more than $42 billion following the bank’s announcement Wednesday that it needed to raise $2.25 billion to shore up its balance sheet. Signature, which also had a strong crypto focus but was much bigger than Silvergate, was seized by banking regulators on Sunday night.

Signature and Silvergate were the two main banks for crypto companies, and nearly half of all US venture-backed startups kept cash at Silicon Valley Bank, including crypto-friendly venture capital funds and some digital asset firms.

The federal government stepped in on Sunday to guarantee all deposits for SVB and Signature depositors, adding confidence and sparking a small rally in the crypto markets. Both bitcoin and ether are almost 10% higher in the last 24 hours.

According to Nic Carter of Castle Island Ventures, the government’s willingness to stop both banks means it is backing off the way they provide liquidity rather than tightening, and loose monetary policy has historically proven a boon for cryptocurrencies and other speculative asset classes.

But the volatility once again showed the vulnerability of stablecoins, a subset of the crypto ecosystem that investors can typically rely on to maintain a set price. Stablecoins are supposed to be tied to the value of a real-world asset, such as a fiat currency like the US dollar or a commodity like gold. But unusual economic conditions can cause them to fall below their stated value.

Many of the crypto problems of the last year arose in the stablecoin sector, starting with the collapse of TerraUSD last May. Meanwhile, regulators have been on the hunt for stablecoins for the past few weeks. Binance’s dollar-pegged stablecoin, BUSD, saw massive outflows after New York regulators and the Securities and Exchange Commission put pressure on its issuer, Paxos.

Over the weekend, confidence in the sector was dealt another blow when USDC – the second most liquid US dollar-pegged stablecoin – lost its peg and fell below 87 cents at one point on Saturday after its issuer, Circle, admitted to having 3, 3 billion dollars. banquet at SVB. Within the digital asset ecosystem, Circle has long been considered one of the adults in the space, boasting close connections and backing from the traditional financial world. It raised $850 million from investors such as BlackRock and Fidelity and had long said it planned to go public.

DAI, another popular dollar-pegged virtual currency partially backed by the USDC, traded as low as 90 cents on Saturday. Both Coinbase and Binance have temporarily paused USDC to dollar conversions.

On Saturday, some traders started bartering their USDC and DAI for tether, the world’s largest stablecoin with a market cap of more than $72 billion. Tether’s issuing company had no exposure to SVB, and it currently trades above its $1 peg as traders flock to safer pastures, although Tether’s business practices have been called into question, as has the state of its reserves.

The stablecoin market started to bounce back starting Sunday night after Circle released a blog post saying it would “cover any shortfall using company resources.” Both USDC and DAI have since switched back to their dollar peg.

Now that it’s clear that SVB depositors will be made whole, Carter tells CNBC that he expects USDC to trade at par.

In the longer term, the shutdown of the crypto banking trifecta could spell trouble for bitcoin, the world’s largest cryptocurrency, with a market cap of $422 billion.

Silvergate Exchange Network (SEN) and Signatures Signet were real-time payment platforms that crypto customers considered core offerings. Both allowed commercial customers to make payments 24 hours a day, seven days a week, through their respective instant settlement services.

“Bitcoin liquidity and crypto-liquidity in general will be somewhat degraded because Signet and SEN were key for businesses to get fiat over the weekend,” said Carter, who added that he hopes client banks will step in to fill the post-SEN void and Signet.

“These were the two most bitcoin-friendly banks that supported the lion’s share of fiat settlement for bitcoin trades between US counterparties,” Mike Brock wrote in a post on social media app Damus. Brock is the CEO of TBD at Block, an entity focused on cryptocurrency and decentralized finance.

While Carter believes the Fed stepping in to guarantee depositors in SVB will prevent a major bank run on Monday, he says it’s still disheartening to see the three biggest crypto-friendly banks taken offline in a matter of days.

“There are very few opportunities now for crypto companies, and the industry will be strapped for liquidity until new banks step in,” Carter said.

Mike Bucella, a longtime crypto investor and executive, says many in the industry are moving to Mercury and Axos, two other banks that cater to startups. Meanwhile, Circle has already publicly said it is moving assets to BNY Mellon now that the Signature bank is closing.

“Crypto banking in the short term in North America is a tough place,” Bucella said. “However, there is a long tail of challenger banks that can pick up that slack.”

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