{"id":563138,"date":"2023-03-13T17:01:00","date_gmt":"2023-03-13T14:01:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/crypto-industry-may-escape-lasting-damage-from-silvergate-liquidation\/"},"modified":"2023-03-13T17:01:00","modified_gmt":"2023-03-13T14:01:00","slug":"crypto-industry-may-escape-lasting-damage-from-silvergate-liquidation","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/crypto-industry-may-escape-lasting-damage-from-silvergate-liquidation\/","title":{"rendered":"# Crypto industry may escape lasting damage from Silvergate liquidation"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_84 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a2ebe0513261\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a2ebe0513261\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/crypto-industry-may-escape-lasting-damage-from-silvergate-liquidation\/#%E2%80%9D_Crypto_industry_may_escape_lasting_damage_from_Silvergate_liquidation_%E2%80%9C\" >&#8221; Crypto industry may escape lasting damage from Silvergate liquidation  &#8220;<\/a><ul class='ez-toc-list-level-2' ><li class='ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/crypto-industry-may-escape-lasting-damage-from-silvergate-liquidation\/#Lessons_learned\" >Lessons learned?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/buradabiliyorum.com\/en\/crypto-industry-may-escape-lasting-damage-from-silvergate-liquidation\/#Just_growing_pains\" >Just growing pains?<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h1><span class=\"ez-toc-section\" id=\"%E2%80%9D_Crypto_industry_may_escape_lasting_damage_from_Silvergate_liquidation_%E2%80%9C\"><\/span>&#8221; Crypto industry may escape lasting damage from Silvergate liquidation  &#8220;<span class=\"ez-toc-section-end\"><\/span><\/h1>\n<p><img decoding=\"async\" src=\"https:\/\/images.cointelegraph.com\/images\/840_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjMtMDMvYWM2ZmYwMGEtYjQ4My00ZmY2LWE2YzgtNzMwMTMwZjBjZjcxLmpwZw==.jpg\" \/><\/p>\n<div class=\"post-content\" data-v-48054ca8>Banks are the lifeblood of a nation\u2019s economic system, and any bank collapse is disturbing. Last week saw two failures. On March 8, Silvergate Capital \u2014 the cryptocurrency-focused banking company \u2014\u00a0entered into voluntary liquidation. On March 10, United States regulators shut down and seized the deposits of tech-oriented Silicon Valley Bank in what was being called the second-largest bank failure in U.S. history. Both California institutions were victims of bank deposit runs.\u00a0<\/p>\n<p>The fallout from the collapse of Silicon Valley Bank (SVB) could be significant, though it\u2019s too early to tell. Stablecoins like USD Coin (USDC) and Dai (DAI)\u00a0losing their dollar pegs\u00a0is never a good sign, but they were recovering by Sunday, March 12. However, it\u2019s unlikely that the Silvergate Bank debacle will cause long-term harm to the crypto sector.<\/p>\n<p>The fall of the San Diego-based Federal Reserve-member bank should be a minor event compared with the earthquake unleashed by FTX\u2019s November 2022 bankruptcy, sources told Cointelegraph. FTX\u2019s implosion damaged scores of crypto firms, including Silvergate Bank. By comparison, the fallout from the bank\u2019s liquidation should be more contained. It might even provide some valuable lessons about diversification \u2014 a fundamental principle of risk management that seems to be forgotten when markets soar. <\/p>\n<p>There will likely be short-term consequences that will likely make life more difficult and costly for crypto firms to find banking services in the United States. And it\u2019s not just the U.S. that is seeing some turmoil. <\/p>\n<p>In Latin America, which is primarily a crypto foreign exchange (FX) market where many firms buy stablecoins like USDC and Tether (USDT) as a means of sending funds abroad, \u201cthe Silvergate fallout was problematic,\u201d Thiago C\u00e9sar, the CEO of fiat on-ramp provider Transfero Group, told Cointelegraph. <\/p>\n<p>\u201cMost crypto exchanges lost their U.S. dollar rails.[&#8230;] It impacted the alternative FX market in LATAM fueled by crypto.\u201d Local Brazilian dealers in USDT and USDC suddenly couldn\u2019t replenish their inventories, C\u00e9sar reported. (This interview was conducted before the SVB seizure, which rattled some stablecoin firms further.) <\/p>\n<p>Josh Olszewicz, head of research at Valkyrie Digital Asset Management, told Cointelegraph: \u201cThe lack of on and off-ramps as well as <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/general\/\" data-internallinksmanager029f6b8e52c=\"3\" title=\"General\" target=\"_blank\" rel=\"noopener\">general<\/a> banking needs of consumers and businesses interacting with the crypto industry may be hampered in the near term.\u201d Coinbase, Paxos, Gemini, Bitstamp and Galaxy Digital, among others, were using Silvergate as a banking partner.<\/p>\n<p>That said, the Silvergate collapse probably doesn\u2019t present long-term obstacles. \u201cFundamentally, a bank exiting the crypto industry does not hurt any blockchain, including Bitcoin,\u201d Olszewicz added.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Lessons_learned\"><\/span>Lessons learned?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Joseph Silvia, partner at law firm Dickinson Wright \u2014 and former counsel to the Federal Reserve Bank of Chicago \u2014 views Silvergate Bank\u2019s liquidation more as a \u201ccautionary tale\u201d than a harbinger of tougher times for the crypto sector. The bank was insufficiently diversified and dependent on the crypto industry for its deposits. Similarly, Silicon Valley Bank was arguably too concentrated on tech-based venture capital firms. In both cases, a trickling away of customer deposits rapidly turned into a torrent.\u00a0<\/p>\n<p>More than 90% of Silvergate\u2019s deposits were from crypto-related firms, and after FTX\u2019s November implosion, nervous investors withdrew those deposits in what amounted to a classic bank run. This activity did not go unnoticed by U.S. bank regulators. The Federal Reserve and the Office of the Comptroller of the Currency\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.fdic.gov\/news\/financial-institution-letters\/2023\/fil23008.html\">issued<\/a> a joint statement in February, warning banking organizations about \u201cliquidity risks\u201d as the result of \u201ccrypto-asset market vulnerabilities.\u201d <\/p>\n<p><strong><em>Recent:\u00a0Next stop Shanghai \u2014 Ethereum\u2019s latest milestone <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>roaches<\/em><\/strong><\/p>\n<p>In the wake of Silvergate\u2019s liquidation, some traditional banks may now shut the doors entirely to crypto accounts, while others may severely limit acceptance of crypto deposits, said Silvia. This will probably increase costs for U.S. crypto firms as their banking options become more limited. <\/p>\n<p>Aside from being too concentrated on a single high-risk industry sector, Silvergate may have invested in the wrong assets. As Austin Campbell, an adjunct professor at Columbia Business School and managing partner of Zero Knowledge Consulting, told Cointelegraph, \u201cEssentially, you either want a highly diversified deposit base if you have longer-dated assets because you can\u2019t easily survive a run and need the diversification, or if you are highly concentrated, you should have a much shorter duration asset base so that you can easily liquidate in the case of a mass withdrawal.\u201d Campbell added:<\/p>\n<blockquote><p>\u201cSilvergate was highly concentrated and had longer duration securities. You can\u2019t do both. You need to pick one. They would have been fine being this concentrated if they didn\u2019t extend out duration on the asset side.\u201d<\/p><\/blockquote>\n<p>Campbell doesn\u2019t think Silvergate\u2019s collapse will be as consequential for the crypto sector as FTX\u2019s collapse \u2014 nor even have much of an impact in the broader banking industry. Silvergate\u2019s assets totaled $11.4 billion at the end of 2022, which is mid-sized by U.S. bank standards.\u00a0<\/p>\n<p>By comparison, JPMorgan Chase\u2019s year-end balance-sheet assets stood at $3.66 trillion, more than 300 times larger. SVB, with $209 billion in assets, is somewhere in between. Silvergate is \u201cthe definition of a small problem\u201d from a mainstream banking perspective, observed Campbell, who went on to say:<\/p>\n<blockquote><p>\u201cFor crypto, FTX was a big issue not just because of the volume but because of the staggering depth of the fraud and mismanagement. Silvergate appears to have just messed up asset-to-liability matching, which is an age-old problem in banking. It was not that the CEO was stealing billions from the customers.\u201d<\/p><\/blockquote>\n<p>\u201cFTX was a much more serious problem,\u201d agreed Justin d\u2019Anethan, institutional sales director at the Amber Group \u2014 a Singapore-based digital asset firm. D\u2019Anethan added, \u201cCountless entities were funded, trading, custodied, earning yields and lending to either FTX the exchange or Alameda the fund. That rippled into the entire crypto space.\u201d<\/p>\n<p>Silvergate may have an impact in the U.S., \u201cbut it still leaves crypto [firms] with many alternatives and substitutes, and, if anything, the impetus to be more decentralized,\u201d d\u2019Anethan continued. In the short term, \u201cother crypto-friendly banks like BCB, Prime Trust, SEBA\u201d offer on-ramp\/off-ramp and FX conversions. \u201cNaturally, for mainstream or institutional adoption, you do need fiat rails for fresh capital to come into crypto markets. But, at this point in time, there\u2019s nothing that makes me think we\u2019ll be lacking those.\u201c<\/p>\n<p>Others suggested that U.S. regulators are intent on scaring off traditional banks from doing business with cryptocurrency exchanges. Will it result in crypto firms moving out of the United States, with users going to peer-to-peer transactions as in China, as Samson Mow recently suggested?<\/p>\n<blockquote class=\"twitter-tweet\">\n<p lang=\"en\" dir=\"ltr\">Silvergate going down and exchanges losing their banking doesn\u2019t impact <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/twitter.com\/hashtag\/Bitcoin?src=hash&amp;ref_src=twsrc%5Etfw\">#Bitcoin<\/a>. The collapse of fiat banking for exchanges will just mean buying\/trading goes P2P. <\/p>\n<p>Just like in China. There\u2019s still a robust P2P trading ecosystem with exchanges gone.<\/p>\n<p>\u2014 Samson Mow (@Excellion) <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/twitter.com\/Excellion\/status\/1631475425518952449?ref_src=twsrc%5Etfw\">March 3, 2023<\/a><\/p><\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>\u201cI think many US-based businesses will already have or be in the process of finding overseas solutions. And this will benefit jurisdictions that are more crypto-friendly. I\u2019m thinking of Dubai, Singapore, Hong Kong, maybe the U.K. or Switzerland,\u201d said d\u2019Anethan, adding:<\/p>\n<blockquote><p>\u201cFor retail, if based in the U.S., it will be trickier. Ironically, in a bid to protect retail investors, regulators might stop them from getting exposure to an industry that \u2014 if history is any guide \u2014 keeps on growing and gaining adoption worldwide.\u201d<\/p><\/blockquote>\n<p>Valkyrie\u2019s Olszewicz even saw a positive outcome if the U.S. finally got sensible crypto regulation. \u201cPotentially, as digital asset businesses and exchanges become increasingly regulated, the larger traditional banks may become warmer to establishing relationships with those in the digital asset space. If not, then yes, more and more businesses and capital will move offshore as crypto isn\u2019t going anywhere anytime soon.\u201d<\/p>\n<p><strong><em>Recent:\u00a0Ethereum layer-2 solutions may focus less on token incentives in the future<\/em><\/strong><\/p>\n<p>\u201cI think the long-term impact will be banking relationships moving elsewhere, and in a positive case, becoming both more diversified and more resilient,\u201d said Columbia Business School\u2019s Campbell. \u201cThe U.S. regulators, however, are moving in the other direction and taking this as an example that crypto is the problem \u2014 it\u2019s not, poor risk management was \u2014 so this may also force crypto to build stronger banking relationships both in Asia and in Europe, especially in a post-MiCA [Market in Crypto-Assets] world.\u201d<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Just_growing_pains\"><\/span>Just growing pains?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>More regulatory clarity about cryptocurrencies and blockchain <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/technology\/\" data-internallinksmanager029f6b8e52c=\"4\" title=\"Technology\" target=\"_blank\" rel=\"noopener\">technology<\/a> would be helpful, Dickinson Wright\u2019s Silvia suggested. At some point, U.S. regulators may become more explicit in their advisory statements \u2014 warning banks, for example, that if they accept crypto deposits, the total value cannot exceed 5% of overall liabilities. In the meantime, crypto deposits remain a liquidity risk, Silvia added. \u201cThey\u2019re not as sticky as traditional deposits.\u201d<\/p>\n<p>Some U.S. crypto firms may need to find new banks, while traditional banks may be more hesitant to accept crypto-related deposits \u2014 at least for now. But the nascent crypto industry isn\u2019t going anywhere, added Silvia, who views current turmoil as growing pains. Some weeding out of bad actors is probably necessary at this stage. That said, the crypto sector remains \u201can interesting value proposition,\u201d he told Cointelegraph. <\/p>\n<p><template data-name=\"subscription_form\" data-type=\"markets_outlook\"><\/template><\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong>\n<\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/general\/\" target=\"_blank\" rel=\"noopener\">General category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/cointelegraph.com\/news\/crypto-industry-may-escape-lasting-damage-from-silvergate-liquidation\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8221; Crypto industry may escape lasting damage from Silvergate liquidation &#8220; Banks are the lifeblood of a nation\u2019s economic system, and any bank collapse is disturbing. Last week saw two failures. On March 8, Silvergate Capital \u2014 the cryptocurrency-focused banking company \u2014\u00a0entered into voluntary liquidation. On March 10, United States regulators shut down and seized&#8230;<\/p>\n","protected":false},"author":1,"featured_media":563139,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/images.cointelegraph.com\/cdn-cgi\/image\/format=auto,onerror=redirect,quality=90,width=1200\/https:\/\/s3.cointelegraph.com\/uploads\/2023-03\/ac6ff00a-b483-4ff6-a6c8-730130f0cf71.jpg","fifu_image_alt":"","footnotes":""},"categories":[1],"tags":[75493,74355,71939,70934],"class_list":["post-563138","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-stablecoin","tag-adoption","tag-banks","tag-regulation"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/563138","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=563138"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/563138\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/563139"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=563138"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=563138"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=563138"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}