How Will They Affect The Crypto Industry?

Even though the crypto market remains resilient amid a series of collapses, the crypto industry faces a challenging future of tightening oversight and lack of liquidity with banks under pressure.

Another day, another troubled bank.

Bloomberg revealed that First Republic was close to becoming the latest name on the list of the banking crisis. The bank was reportedly struggling to maintain its financial stability and exploring sale options.

New Bank In Trouble

On Thursday, Wall Street came to the rescue funded by some of the largest banks. The list includes JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley.

The Federal Deposit Insurance Corporation (FDIC) previously stepped in with a bailout for Silicon Valley Bank and Signature Bank, ensuring that customers could access their deposits starting from Monday this week.

An earthquake hit the banking sector in less than a week after three banks closed doors, including Silicon Valley Bank and two crypto-friendly banks – Silvergate and Signature.

Silvergate kicked off with an announcement of shutdown and liquidation. Silicon Valley Bank (SVB), which knowingly supports tech startups, collapsed on March 10.

Signature Bank was ordered to cease its operations by regulators following those events. The move, however, sparks an ongoing controversy in the crypto community.

Many argue that the US authorities are attempting to crack down on the industry by tying the recent collapses to cryptocurrency.

A Quick Retort

In response to the claims, the New York State Department of Financial Service (NYDFS) stressed that the regulators’ decision had nothing to do with the crypto industry.

The bank closure resulted from a crisis of confidence rather than an anti-crypto message.

The NYDFS said it worked with other government regulators to investigate recent events. The authorities want to explore the cause of these collapses while helping bank customers get their money back.

Will Crypto Be In Trouble?

The world of finance has been abuzz since the banking crisis, with opinions divided on the role of cryptocurrency. Some experts see it as a potential solution, while others blame it for the crisis.

Speaking at the Senate Finance Committee on March 16, Senator Michael Bennet suggested that the instability of cryptocurrency could be the root cause of the failures of crypto-friendly banks.

The Colorado state representative said that the nascent industry was not “even as stable as the marijuana industry,”

To prove his point, Bennet showed the case of Signature Bank.

According to the Senator, “Signature Bank failed and almost a fifth of its deposits came from crypto.” He added, “They’re not allowed to do anything with marijuana, but apparently they can lay 20% of this on crypto — a notoriously unstable […] thing that nobody here even understands and where the value of the assets can soar and collapse.”

Aside from the blame being placed on crypto, the industry is facing a bigger problem, as the closure of the most crypto-friendly banks could significantly affect the landscape of digital currencies.

Silvergate Exchange Network (SEN) and Signature’s Signet are two of the essential on-off ramp services that most crypto exchanges rely on. These platforms play an important role in the industry, enabling customers to make immediate payments round-the-clock.

Closing these banks could be a roadblock to the liquidity of Bitcoin and other cryptocurrencies. The absence of these services and alternatives could lead to a difficult period for investors who need to acquire fiat currencies. The industry currently has very few options and could face limited liquidity until new banks emerge

So, what does all of this mean for Bitcoin and the cryptocurrency world? Well, it’s hard to say for sure. But one thing’s for certain: the closure of these banks will have an impact, and we’ll have to wait and see how it all plays out.