Is collapse of SVB, Signature Bank, or Silvergate a blessing or curse for Bitcoin, cryptocurrencies?
- The shut down of these banks did sent a shockwave across companies and individuals. In regards to crypto market, these banks failure is likely to have some impact however may be short lived. Experts also believe the failure may become a blessing for Bitcoin and other cryptocurrencies.
Billions of dollars of money are stuck in US-based lenders after they met their doomsday earlier in March. It began with the 16th largest lender Silicon Valley Bank and right after, in a matter of hours, lenders like Signature Bank and Silvergate Capital followed suit. These banks have exposure to cryptocurrencies as well, in fact, they have been seen as flexible hubs to park their money. The shutdown of these banks sent a shockwave across companies and individuals. In regards to the crypto market, these banks' failure is likely to have some impact however may be short-lived. Experts also believe the failure may become a blessing for Bitcoin and other cryptocurrencies.
When the SVB collapsed, Punit Agarwal, Founder of KoinX cited that not only did it cause tremors across the tech industry, but the crypto markets felt its effect equally. USDC (a stablecoin), for example, lost its $1 peg and tanked straight to $0.89.
KoinX added that crypto companies like Circle (the issuer of USDC) found themselves unreachable to the $3.3 billion it had in SVB. In the same way, crypto holders that are trying to convert their USDC to other stablecoins are also excessively using the Ethereum network right now, which has led to the gas fee going way up.
Yesterday, a Reuters report said that Circle pulled around $3 billion from its overall reserves at SVB.
Right after SVB met its doomsday, one of the largest operators of USDC, Circle announced that it had $3.3 billion of reserves backing the token which was stored with the bank.
Among some of the major crypto names that came in limelight to face impact from US bank fallout are Coinbase Global Inc. and Paxos Inc.
Agarwal believes the future of SVB isn’t certain right now, its collapse has still had somewhat of a negative impact on the crypto market.
Another lender Signature Bank especially is said to be one of the largest lenders of crypto.
As of March 8th, Bloomberg earlier reported that Signature had begun a pullback from digital assets in the wake of the blowup of the FTX exchange but still had $16.5 billion in crypto-related client deposits. Also, both Signature and Silvergate enabled fast payments between customers like hedge funds and exchanges, supporting digital-asset liquidity.
Giving a brief about the SVB, Silvergate, and Signature Bank, Rajagopal Menon, Vice President, WazirX said, these banks "are all known to have significant exposure to cryptos."
Menon explained further:
- Silicon Valley Bank (SVB) is a major bank in the United States, focusing on technology and innovation-based businesses, including several crypto startups. SVB is a pioneer in the crypto space, offering services such as cryptocurrency custody and lending.
- Silvergate Bank is well-known for offering banking services to the crypto industry. Silvergate created a platform that enables crypto exchanges and other businesses to retain deposits in multiple cryptos that could be used to facilitate trades and other activities.
- Signature Bank is another bank that has aggressively served the crypto industry. Signet, the bank's blockchain-based payments platform, allows users to move funds immediately and without incurring costs.
As per WazirX's vice president, the exposure of these banks to cryptos can impact both the crypto companies and investors. Access to banking services from SVB, Silvergate, and Signature Bank is critical for crypto firms. These banks can provide the necessary infra to crypto-related businesses, including access to capital, custody services, and payment processing.
For investors, Menon said, "these institutions' exposure to cryptos demonstrated the credibility and potential of the crypto market. It may also allow investors to indirectly invest in the cryptocurrency business by investing in these institutions."
Interestingly, Dileep Seinberg, Founder & CEO of, MuffinPay believes these banks' fallout is a blessing to Bitcoin and other cryptocurrencies.
Seinberg said, the fallout of tech lender Silicon Valley Bank is a blessing for Bitcoin and cryptocurrencies as the event has drawn parallels with the 2013 Cyprus Crisis that highlighted the flaws in the fractional reserve system and brought decentralized banking under the spotlight. In such cases, there are no depositors, only lenders and this wipes billions of dollars from the economy.
In a fractional reserve banking system, Seinberg highlighted that a lender is required to maintain only a small portion of deposits that are available for withdrawal while the remaining funds are lent out for economic activities and banks earn interest on them. The lenders believe that the withdrawal amount will not exceed the threshold limit and if this happens, customer confidence is shaken and this leads to heavy withdrawals from the bank and ultimately chokes the liquidity.
Hence, Seinberg believes that the intervention from the US Fed has stabilized a number of dollar-pegged stablecoins, which earlier had lost their pegging amid the feeble market sentiments. The historic failure of the 16th largest bank in the US is a big dent, but for the crypto fanatics, it is a real-time ad for self-custody assets like Bitcoin.
"We believe that it is a banking crisis and not a crypto crisis. The entire episode is a testimony that customers' funds aren't as safe in regulated banks as they are made to believe," Seinberg added.
Also, the KoinX founder believes that with time, it seems that we might be able to recover from this gradually too.
On Friday, the crypto market recovered some of its previous losses with Bitcoin crossing over the 26,000 mark.
At CoinMarketCap, during the time of writing, the global crypto market cap traded at $1.14 trillion, rising by 5.4% over the last day.
Bitcoin was up nearly 7% and traded near the $26,700 mark. Bitcoin has touched above $26,800 levels in the early trade. The leader of the crypto market has now recorded weekly gains of nearly 36%.
Meanwhile, Ethereum is up nearly 5% on Friday, and BNB surged over 5% too. XRP, Cardano, Polygon, and Dogecoin also climbed between 3-7%.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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