Signature Failures, SVB, Silvergate: Effects on the Crypto Industry

  • Silvergate and Signature were the two main banks for crypto companies, while Silicon Valley Bank had many crypto startups and VCs as customers.
  • The failure of the crypto banking trifecta rippled through the stablecoin market over the weekend.
  • On Sunday evening, when the feds stepped in to secure deposits at Signature and SVB, cryptocurrencies rallied and stablecoins had found their pegs.

A man entering Signature Bank in New York on March 12, 2023.


Two of the most crypto-friendly banks and the biggest bank for tech startups all failed in less than a week. As cryptocurrency prices rallied late on Sunday after the federal government stepped in to provide a safety net for depositors at two of the banks, the events sparked instability in the stablecoin market.

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

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

The feds stepped in on Sunday to guarantee all deposits from SVB and Signature depositors, adding confidence and sparking a small rally in the crypto markets. Bitcoin and Ether are up nearly 10% in the past 24 hours.

According to Castle Island Ventures’ Nic Carter, the government’s willingness to support both banks means it is back in the mode of providing liquidity, rather than tightening, and loose monetary policy has historically proven to be a boon. for cryptocurrencies and other speculative asset classes.

But the instability once again showed the vulnerability of stablecoins, a subset of the crypto ecosystem that investors can generally rely on to maintain a fixed price. Stablecoins are meant to be pegged to the value of a real-world asset, such as a fiat currency like the US dollar or a commodity like gold. But unusual financial conditions can cause them to fall below their indexed value.

Many of the problems in crypto over the past year have their roots in the stablecoin sector, starting with the collapse of TerraUSD last May. Meanwhile, regulators have focused on stablecoins over 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 this sector took a hit again as USDC – the second most liquid US dollar pegged stablecoin – lost its peg, falling below 87 cents at one point. given on Saturday after its issuer, Circle, admitted to having $3.3 billion. banked with SVB. Within the digital asset ecosystem, Circle has long been considered one of the adults in the room, enjoying close ties and support from the world of traditional finance. It has raised $850 million from investors like BlackRock and Fidelity and has long said it plans to go public.

DAI, another popular virtual currency pegged to the dollar and partially backed by USDC, traded at 90 cents on Saturday. Coinbase and Binance have temporarily suspended USDC to dollar conversions.

SATURDAY, some traders started trading their USDC and DAI for tether, the largest stablecoin in the world with a market value of over $72 billion. Tether’s issuing company had no exposure to SVB and it is currently trading above its $1 peg as traders flock to safer pastures, even as Tether’s trading practices have come into question, as well as the state of its reserves.

The stablecoin market began to rebound late on Sunday after Circle posted a blog post saying it would “cover any shortfall using company resources.” USDC and DAI have since returned to parity with the dollar.

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

In the long run, the shutdown of the crypto-banking trifecta could spell trouble for bitcoin, the world’s largest cryptocurrency, with a market value of $422 billion.

The Silvergate Exchange Network (SEN) and Signature’s Signet were real-time payment platforms that crypto customers saw as basic offerings. Both allowed business customers to make payments 24 hours a day, seven days a week through their respective instant settlement services.

“Bitcoin liquidity and overall crypto liquidity will be somewhat impaired because Signet and SEN were critical for businesses to get fiat over the weekend,” Carter said, adding that he hopes that client banks would step in to fill the void left by SEN. and Bookmark.

“These are the two most bitcoin-friendly banks, supporting the lion’s share of fiat settlement for bitcoin transactions between commercial counterparties in the United States,” Mike Brock wrote in a post on social media app Damus. Brock is the CEO of TBD at Block, a unit that focuses on cryptocurrency and decentralized finance.

Although Carter thinks the Fed’s intervention to guarantee SVB depositors will prevent a larger bank run on Monday, he says it’s still disheartening to see the three biggest crypto-friendly banks go offline in a matter of days.

“There are very few options now for crypto businesses and the industry will be cash-strapped until new banks step in,” Carter said.

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

“In the short term, crypto banking in North America is a tough place,” Bucella said. “However, there is a long line of challenger banks that could take over.”

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