Recent collapse of US banks risks pushing crypto to other friendly jurisdictions
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The collapse of Silicon Valley Bank, Silvergate Bank, and Signature Bank last week raised questions about the strength of the US banking system. While the closure of the two lenders spiked volatility in bank stocks, it also triggered uncertainty in the cryptocurrency sector.
US bank failures affect crypto businesses
There are concerns that the increased interest rates in the United States might have triggered the situation leading to the demise of Silicon Valley Bank. The high rates lowered the value of the bonds as spending on post-pandemic technology slowed down. Therefore, customers at Silicon Valley Bank were forced to withdraw cash to remain afloat.
The collapse of Silvergate Bank and Silicon Valley Bank was similar because the two firms faced a high volume of withdrawals that triggered a liquidity crisis. However, while US regulators shut down Silicon Valley Bank, Silvergate wound its operations voluntarily and in an orderly manner.
Signature Bank was closed on Sunday, but the reasons behind the collapse of this bank remain unclear. The former Chairman of the House Financial Services Committee, Barney Frank, who was also a member of the Signature Bank board, said that the bank was shut down by US regulators who wanted to send an anti-crypto message. Frank said that Signature Bank was solvent before it was shut down.
However, the New York State Department of Financial Services refuted the claims and said the bank was closed because of a “significant crisis of confidence in the bank’s leadership.” The regulator also noted concerns over Signature Bank’s ability to continue operating safely and soundly.
Will crypto be affected by US bank failures?
On Monday, there was much volatility across the banking sector, with most bank stocks losing value. First Republic Bank lost over 60% of its share value amid a crisis of confidence. However, on Tuesday, most bank stocks made a significant recovery. Additionally, Bitcoin appeared to make a notable rally despite the banking crisis.
However, there are concerns that the collapse of these three banks will significantly affect the efficiency of the crypto industry. Circle, the issuer of the USDC stablecoin, had disclosed that over $3 billion of its reserves were at Silicon Valley Bank. The revelation caused the USDC stablecoin to lose its peg, but it has since repegged back to $1.
While New York regulators have refuted claims that the closure of Signature Bank was intended to send an anti-crypto message, US regulators have aggressively pushed for crypto regulations. The recent happenings in the United States have sparked a discussion that crypto businesses might move from the US to more-friendly jurisdictions.
The European Union is working on a clear regulatory framework for crypto assets. EU lawmakers are set to vote on the Markets in Crypto Assets (MiCA) regulatory framework that has been praised for its comprehensive coverage of the regulatory framework for digital assets.
In the UK, regulators are also holding consultations on several proposals around regulating crypto asset activities in the country. Asia and the Middle East are also making significant efforts to attract crypto businesses.