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The two largest banking institutions serving the cryptocurrency business in the US have closed in the last four days. Investors are concerned that the collapse of Signature Bank, whose assets were confiscated by regulators on Sunday evening, was imminent in the wake of Silvergate Bank’s looming liquidation and with regulators’ growing hostility towards crypto companies. Now that event has passed and there are few options left for young US crypto startups for banking relationships. “There will be a black mark of sorts on crypto deposits over the next few weeks,” said Conor Ryder, an analyst at Kaiko. “Perhaps one of the smaller banks will decide to raise their hand and take deposits, but I don’t think they will take this opportunity after everything was done over the weekend.” The biggest priorities for the industry right now are diversifying into crypto and focusing on educating policy makers. Even before the closure of Silvergate and Signature, crypto regulatory action had already begun. The days before crypto forward banks came to the industry were some of the darkest for the industry. The inability to build relationships with banks was a big obstacle to growth. At the end of February, the three major banking regulators released a joint statement warning banks of the liquidity risks associated with cryptocurrency banking companies. In January, a Wyoming-listed special purpose depository institution and the famed unleveraged Custodia Bank kicked off a debanking wave when its application to become a member of the Federal Reserve was rejected. “Banks and law firms are getting a clear message from regulators: distance yourself from crypto companies,” said Rick Edelman, founder of the Council of Digital Asset Finance Professionals. “This is a blatant bias that is not legally enforceable, and if it persists, it will harm US innovation for decades to come,” he said of Signature’s closure. “But at the moment, cryptocurrency companies are increasingly finding themselves where cannabis companies were a decade ago.” Stablecoins in the spotlight Regulating stablecoins should take center stage as the industry seeks alternatives to banking, according to various crypto market participants who are skeptical that the remaining banking institutions will welcome crypto with open arms. One of the most obvious ways forward for crypto firms is to trade stablecoins. “We are seeing crypto-pairs with stablecoins rise to an all-time high of 90% of trading volume on exchanges compared to 79% a year ago – at the expense of the dollar,” Ryder said. “The industry is becoming less and less dependent on the US dollar and crypto firms are familiar with stablecoins, so the transition may be smoother than people expect.” He added that stablecoins also fill the need for a 24/7 payment system. Both Silvergate and Signature offered a service that allowed fiat money to easily flow into crypto assets. Even if another bank opens its arms to crypto companies, the industry will still feel the loss of the Silvergate exchange network and Signet’s Signet platform. Kaiko reported on Monday that liquidity on US exchanges is already suffering. Gemini is down 74% in a month while Coinbase is down 50% and liquidity on Binance.US is down 29%. Binance, however, suffered less, 13%. The problem with stablecoins, Ryder said, is that they concentrate trust in a handful of stablecoin issuers who will likely need to be more heavily regulated. Circle’s USDC stablecoin broke its peg against the US dollar over the weekend, dropping below 87 cents. The hype began after Circle said it had about $3.3 billion in SVB. On Monday, he regained his peg.
Credit: www.cnbc.com /
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