Collapse of Silvergate and Silicon Valley Bank Represent a Challenge For Crypto


Silvergate Bank and Silicon Valley Bank lighting the fire will make it more challenging for cryptocurrency to establish financial partnerships.

The failure of Silicon Valley Bank (SVB) and Silvergate Capital, two banks known for their support of cryptocurrency, has created difficulties for many cryptocurrency firms. Losing a key banking partner means it will be even more challenging for these companies to comply with regulations and offer their services in line with the expectations of the United States Securities and Exchange Commission.

The aftermath of the banks' collapse also had an impact on USD Coin (USDC), the second-most liquid stablecoin pegged to the U.S. dollar. Its value temporarily dropped below $0.87 because Circle, the issuer of USDC, disclosed that it held $3.3 billion at SVB. Circle is a well-known and established player in the cryptocurrency industry, so this news understandably shook investors, causing many to lose confidence in cryptocurrencies once again.

Generally, a collapse of this nature can lead to instability in the value of a stablecoin due to its dependence on real-life assets. However, in the long term, such a situation can also create pressure on other major players in the cryptocurrency market, such as Bitcoin (BTC) and Ethereum (ETH). In the aftermath of the collapse, BTC and ETH both saw a nearly 10% drop in value, raising concerns about a possible liquidity shortage in the industry.

Moreover, the collapse of SVB and Silvergate has also caused other banks to become hesitant about forming new relationships with the crypto industry. This could make it even more difficult for crypto firms to find stable banking partners in the future.

In summary, this situation has a domino effect: when a major player at the center of a spiral that holds the group together becomes unstable (in this case, SVB and Silvergate), the rest of the structure will follow once that central piece falls.

The uncertainty and unease that followed the collapse of these banks are likely to have a ripple effect on investor confidence, adoption, and growth, which are all critical aspects for further mass adoption of cryptocurrencies. Additionally, without a stable banking partner, crypto companies may struggle to comply with regulations, which has already been a significant challenge for many crypto firms. Ultimately, crypto companies will be unable to provide their services consistently, leading to their eventual downfall.

Another factor exacerbating this situation is the SEC's longstanding scrutiny of crypto firms. With the collapse of SVB and Silvergate, crypto companies will likely face even greater regulatory scrutiny regarding their reliance on stablecoins and banking partnerships. This development also has broader implications for the traditional banking industry's relationship with the crypto sector.

What is the reason?

The reason is that as the cryptocurrency industry expands, conventional banks might have to reconsider their associations with crypto businesses and evaluate the potential risks that come with these partnerships.

In the United States, there are indications that the government is making efforts to halt any cryptocurrency activities by opposing crypto companies and banks and using all means available to shut them down. Although this hasn't been confirmed by anyone, rumors within the broader crypto community persist, leading several crypto firms to seek banking partnerships outside of the US.

Despite the fact that the crypto community has mostly recovered from the bank failures, the aftermath remains as a reminder of the obstacles the industry is likely to encounter in the coming weeks and possibly months.

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