From Silvergate to Signature, what effect will these downed banks have on blockchain and crypto? Is it all over? Find out here.
As banks fall one by one, the world finds itself on pins and needles. The consequences of banks like Silvergate, Silicon Valley Bank (SVB), and Signature collapsing will be long-reaching. Much of the world has felt the shockwave, and almost everyone in the crypto/blockchain community is worried about the future of this space.
How much do blockchain and crypto projects have to worry about the supposed banking crisis? What will be the aftermath for the Web3 agenda? We’ll answer these questions and more below.
Why the Blockchain Is Under Threat
Blockchain projects are in a peculiar position due to the recent bank cull. Both Silvergate and Signature were crypto-friendly banks (among the biggest ones in the United States, in fact). They served customers such as Gemini, Coinbase, and Kraken, to name a few.
Meanwhile, SVB issued loans to quite a few crypto-friendly startups, not to mention that major crypto companies like Circle and Blockfi had $3.3 billion and $227 million in reserves at the bank, respectively. Its shuttering was a massive hit to the startup industry, which will have a harder time finding investors for years to come.
Due to these close ties, a lot of the rhetoric has been blaming cryptocurrencies for the current ordeal. Seeing that Silvergate and Signature had dealings with the disastrously defunct FTX, the pieces were in place for a compelling narrative.
So the public blamed crypto, and blockchain enterprises as a whole got sucked into the witch trials. Crypto is being cut off from vital fiat on-ramps, and blockchain adoption will likely suffer a major blow due to the imposed reputation as a killer of finance. Investors and VCs will probably be put off by crypto and blockchain projects, too, making it even harder for such startups to get off the ground.
Blame Traditional Finance, Not DeFi
To anyone that looks further into the topic, it becomes increasingly more clear that the bank shutdowns were a consequence of traditional financial institutions mismanaging risk and causing panic among customers. The opaque, shady practices of executives across the financial sector caused the first domino to fall.
In Silvergate’s case, the fallout from the FTX disaster caused a tidal wave of asset withdrawals, largely by crypto firms now bereft of ways to maintain token liquidity. Remember: FTX collapsed because of asset commingling and a lack of transparency, not a crypto-related hazard.
Meanwhile, SVB got pummeled by a bank run following its attempt to raise capital and recover a $1.8 billion loss. This loss was due to the bank’s short-term deposits into long-term, fixed-income securities like U.S. government bonds. Confidence among investors was lost, and they rushed to withdraw.
Finally, Signature was taken over by the New York Department of Financial Services (DFS) as a preventative measure against another deposit drain. On the bright side, Signature’s depositors will be made whole because the situation was handled before chaos erupted.
Essentially, Silvergate, SVB, and Signature were all toppled by bank runs. These runs were the result of poor investment during inflation, panic-stirring, and a lack of auditing and reporting. But cryptocurrency served as a scapegoat for a government that’s highly skeptical of it.
In other words, crypto has been framed.
Blockchain and Crypto Will Recover
To be sure, the downfall of these banks is a major issue. However, blockchain and crypto won’t be permanently affected by it. Blockchains with strong use cases will still be able to amass capital on the merits of their vision. The road to said capital has been made more squiggly, but the focus on true value will be what guides projects to success.
Crypto advocates have been quick to point out how recent events justify the need for a decentralized currency. While traditional banks struggle with inflation and liquidity, Bitcoin’s network is growing steadily, unphased by the storm brewing outside its window. If anything, its value bounced after the banks started falling over and is riding high at the moment.
As time passes and more behind-the-scenes information comes to light, confidence in crypto and blockchain will recover. With the right PR and marketing, it can become stronger than ever. That’s when the world of Tomorrow will start becoming the world of today.
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