The most recent edition of delegate duties to Cointelegraph explores whether the cessation of operations of SVB and Signature Bank by American regulators is a move against the crypto ecosystem.
American banks who were supportive of cryptocurrencies, like Signature Bank, provided services to significant cryptocurrency companies like Paxos Trust, Celsius Network, and others that are now suffering as a result of recent judgments made by the Federal Deposit Insurance Company and the state’s Department of Financial Services. Check out the Crypto Volatility payment system Immediate Profit for those who are new to cryptocurrency trading and investing.
A Bitcoin Smart cryptocurrency venture capital companies, particularly Andreessen Horowitz, Paradigm, and Pantera Capital, are said to have processed more than $5 billion in money through Silicon Valley Bank (SVB) in recent years.
Accepting Cryptocurrency:
The New York-based Signature Bank, for instance, was not just a crypto bank; it also played a significant role in lending for real estate and providing services to legal firms.
One of the bank’s executives, Eric Howell, said at the time particular the institution was the leading participant in that industry.
The cryptocurrency firms could always immediately transfer money into and out of cryptocurrency thanks to their banking system Signet, which was also operated by Signature Bank.
According to Forbes, over two trillion dollars worth of cryptocurrency has been in and out of circulation since 2019 thanks to Signature and its major rival, SEN, from Silvergate Bank.
Dropping Dominos
However, towards the final day of last week, Silicon Valley Bank had a quick bank run as a result of many of its technological start-up clients withdrawing their deposits due to banks financial position.
The crisis brought attention to Signature Bank. If the bank genuinely went bankrupt during this period is not yet known. Nevertheless, the New York State Office of Financial Services still seized Signature because it “failed to submit consistent and accurate data, creating a significant breach of confidence in the bank’s leadership.
Acquiring Financial Partners:
Even if Signet stays in business, the loss of the capacity for Signature to accept cryptocurrency deposits remains a significant problem. Other smaller banks do take cryptocurrency, but Signature’s engagement gave the sector legitimacy, particularly within the context of regulatory criticism. A joint statement reminding banks of the risks that cryptocurrency poses to the wider financial system was released in January by the FDIC along with additional financial authorities.
Numerous financial institutions, especially smaller ones, will probably refrain from taking on the danger and stigma of even considering partnering with cryptocurrency because of market tremors and regulatory scrutiny.
Some of the potential backups have also been affected by this contagious disease:
Management of risks is essential.
Along with blaming the crypto industry, it became increasingly clear that the handling of risks was suspect in perhaps some situations as these banks kept failing. The recent bull market saw Silicon Valley Bank place a sizable wager on low-interest assets that quickly lost value; Silvergate, by its very existence, had become extremely susceptible to the crypto sector, and Signature Bank’s actions had already been the subject of numerous investigations; stepping into the crypto market only heightened this scrutiny.
Planned redundancies.
Companies and organizations need to have backup plans in place to handle such market volatility; something should be obvious at this stage, especially given how quickly financial institutions fell over a single weekend. This concept may take various shapes depending on the organization in question, but it must include the following:
1) access to sources of liquidity.
2) methods of informing investors about plans and updates.
3) a real-time reporting of financial information protocol that will both educate and potentially reassure them.
Conclusion:
Many of them these same principles apply to cryptocurrency companies as well, particularly to those looking to create coins and/or tokens that may be used as a means of exchange. Customers’ and depositors’ confidence and faith in the currency and financial institutions as a whole are crucial; thus, stablecoin issuers—who is currently in hot water with regulators—should pay close attention. Looking forward, we should give priority to creating contingency plans and disseminating them to the market, especially during times of uncertainty.
Financial circumstances are still shaky, so crypto has a chance to learn from others’ errors and develop better, more durable applications as a consequence.
