How crypto will evolve after this weekend’s banking crisis

The mood on Sunday, March 11, was bleak. With three US-headquartered banks – one catering to startups and two heavily involved in crypto – collapsing in less than a week, many startups around the world expected to end up penniless.

“This was the first time since the dot-com crash that I felt we were in a dot-com crash moment,” Kevin McClellan, an entrepreneur in Silicon Valley, tells Tech in Asia.

New York-based Signature Bank and California-based Silvergate Bank were the two largest crypto-friendly banks in the US. / Photo credit: gnepphoto / Shutterstock

“We were collectively looking at a possible scenario where something like half the VC industry – and the startups they were backing – could wake up with no money at all,” McClellan says.

Last-minute maneuvers by the US and UK governments to protect investor deposits helped quell the industry’s feelings of impending doom, but many were still left looking for new banks. The banks that crashed – and not just their deposits – were critical infrastructure for the crypto industry.

New York-based Signature Bank and California-based Silvergate Bank were the two largest crypto-friendly banks in the US. Without them, most of the international crypto community is cut off from the US financial system.

Silicon Valley Bank (SVB), the 20th biggest bank in the US and the largest to go under since Washington Mutual in 2008, held billions of dollars worth of assets for stablecoin issuers. Circle, the issuer of the USDC stablecoin, announced it had over US$3.1 billion in SVB.

What happened?

What’s worse is how the three banks walked the short route to receivership.

Small and medium-sized businesses withdrew funds, which caused the banks to sell bonds to boost their asset sheets. But the bonds were sold at a loss, affecting the banks’ stock prices and prompting a sell-off.

This chain of events led directly to a run on the banks. While government action will likely forestall immediate job losses, there are still concerns about what comes next.

The questions on most startup founders’ minds were: Which banks would still do business with crypto-based platforms? Is there enough liquidity and access to US dollars? Had they placed too much faith in the US financial system?

Who can you bank with now?

The biggest concern for most was finding a new bank.

Speaking to Tech in Asia, OpenEden co-founder Eugene Ng said it’s hard to know which bank will be the successors to Silvergate and Signature. However, he does see some second-tier banks and payment companies that can step up and fill the gap.

“There will be new entrants,” says Ng, whose company is a decentralized finance (DeFi) protocol for real-world assets. “There will be other players, whether it’s in the US or in an offshore entity or offshore jurisdiction … This is too big an opportunity for them to miss out.”

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