Even as crypto-friendly banks shut down, other lenders are increasingly shutting their doors to the space.
Photographer: Archive Photos/Archive PhotosIn this edition of the Bloomberg Crypto newsletter, explores the strained relationship between banks and crypto:
Off the rails
The risks that loom in crypto for the traditional financial system have been discussed at length by banks and regulators alike. What those in the crypto sector didn’t anticipate, however, is the hazard that banks might pose to them instead.
Getting away from traditional finance has long been a hallmark of digital assets, with Bitcoin being the supposed liberator for everyday people from the bank-dominated global financial system. As time has worn on and crypto’s grown larger, the need to be affiliated with banks — at least for the time being — has become more accepted. Even crypto companies need to administer payroll and pay taxes, you know.
But the collapse of three crypto-friendly banks in under a month — two of which, Signature Bank and Silvergate Bank, were known for their longstanding relationship with the sector — has rocked blockchain-linked firms to the core. Many crypto exchanges quickly had to find new ways of getting money on and off their platforms, while others sent funds to offshore banks that were seemingly more willing to do business.
Circle Internet Financial Ltd., which operates the USDC stablecoin, likely learned the hardest lesson. Around $3.3 billion of cash backing its token was stuck for days in now-defunct Silicon Valley Bank, causing USDC to temporarily lose its dollar value and knocking its reputation as one of the more reliable cryptoassets. The company told me this week that it’s now moved 100% of its cash to Bank of New York Mellon, and despite a recent initiative to store more of its reserves with smaller community lenders, Circle will now be sticking its funds with major banks for the foreseeable future.
To be sure, Circle is one of the lucky ones. It already held relationships with some big traditional finance companies including BlackRock, which manages its portfolio of around $30 billion in short-dated US Treasuries. Making the decision to limit itself to only “GSIBs” — global systemically important banks — is a luxury most in crypto cannot afford.
Some in the sector think crypto’s dilemma goes deeper than a few skeptical institutions, alleging that a coordinated effort to eradicate digital assets from finance is underway inside the US’s top banking echelon and its regulators. As much as crypto loves a conspiracy, it may be more about risk management.
After all, digital-asset industry has had its share of wild swings, scams and blowups. One thing’s for certain: If the two sides can’t learn to get along, crypto will be the one with the bigger immediate problem.
Charting it out
Circulation in Decline
Circle's USD Coin (ticker USDC) has lost nearly $5 billion in market value since February, a period that includes a rare depeg of the stablecoin
Source: CoinGecko
Counting it out
- $3 billionamount of illicit transactions allegedly processed by crypto service ChipMixer, which was shut down by US and German law enforcement agencies
Hearing them out
What we’re reading (and writing)
- Stablecoin Operator Moves $1 Billion in Reserves to Bahamas
- Crypto Companies Are Asking Jamie Dimon to Hold Their Money (New York Magazine)
- Chinese Tycoon Guo Wengui Is Charged With Billion-Dollar Fraud in US
- Silicon Valley Bank Fallout Makes the Case for Digital Currencies (Financial Times)
- Sam Bankman-Fried Got $2.2 Billion Mainly From Alameda Research
- Crypto ETP-Provider 21Shares to Shutter Funds as Demand Fades
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— With assistance by Allyson Versprille
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