The Two “Most Bitcoin-friendly” U.S. Banks Closed In Less Than A Week, How Much Is The Crypto Industry Affected?

Two of the crypto-friendly banks and a major tech start-up have both closed in less than a week. Events taking place in the US banking industry have created instability in the stablecoin market.

Cryptocurrency bank Silvergate Capital announced on March 8 that it will cease operations and conduct liquidation. Meanwhile, Silicon Valley Bank (SVB), which specializes in supporting startups, also collapsed on March 10. Signature Bank, which is larger than Silvergate, was also ordered by banking regulators to close on the evening of March 12.

The federal government has stepped in to secure all customer deposits at SVB and Signature. This information has made the cryptocurrency market green. Both Bitcoin and Ether are up nearly 10% in the past 24 hours.

According to Nic Carter of Castle Island Ventures, the government's willingness to support both banks shows that they are returning to the mode of providing liquidity and loosening monetary policy. This is inherently beneficial to cryptocurrencies and other speculative assets.

But there is another volatile hole in the cryptocurrency market that is stablecoins, a small branch of the cryptocurrency ecosystem. Stablecoins are pegged to the value of a real asset, such as fiat currencies (USD) or gold. But financial fluctuations can cause stablecoins to fall below the fixed price.

Called "stable" but unstable

Starting with the demise of TerraUSD in May 2022, a lot of the problems in the crypto space stem from stablecoins. Recently, regulators have focused on this digital currency. Binance's USD-pegged stablecoin (BUSD) has seen massive outflows, after the US Securities and Exchange Commission (SEC) put pressure on issuer Paxos.

Over the weekend, confidence in the coin was shaken once again as stablecoin USDC lost its peg, falling below 87 cents on March 11. The reason is because the issuer Circle admitted to having $3.3 billion in deposits at SVB.

On March 11, a number of traders began exchanging USDC and DAI for Tether, the world's largest stablecoin with a market value of over $72 billion. The issuer of Tether is not related to SVB.

The stablecoin market began to recover on the evening of March 12, after Circle announced that it would “make up any shortfalls using corporate resources.”

The Two Most Bitcoin-Friendly Banks

In the long run, shutting down the most crypto-friendly banks could hurt Bitcoin. It is the largest cryptocurrency in the world with a market value of $422 billion.

Signature's Silvergate Exchange Network (SEN) and Signet are both core services. These two platforms allow customers to make instant payments 24/7 and 7 days a week.

“The liquidity of Bitcoin and crypto in general will be somewhat impaired, as Signet and SEN are key for companies to get fiat by the end of the week,” Carter said.

Mike Brock wrote in a post on the Damus social media network: “These are the two most Bitcoin-friendly banks, supporting the majority of fiat payments for Bitcoin transactions between trading partners in the US."

“Currently crypto companies have very few options and the crypto industry will have limited liquidity until new banks come in,” Carter added.