Collapse of Silvergate and Silicon Valley Bank represent a challenge for crypto

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The col­lapse of Sil­i­con Val­ley Bank (SVB) and Sil­ver­gate Cap­i­tal, some of the most cryp­to-friend­ly banks in the indus­try, has forced many cryp­to firms to hold their breath. The loss of a sig­nif­i­cant bank­ing part­ner for many com­pa­nies means it will be even hard­er for them to com­ply with reg­u­la­tions and offer their ser­vices in a way that is con­sis­tent with the expec­ta­tions of the Unit­ed States Secu­ri­ties and Exchange Commission.

In the after­math of the banks’ col­lapse, the sec­ond-most liq­uid U.S.-dollar pegged sta­ble­coin, USD Coin (USDC), tem­porar­i­ly lost its peg and fell below $0.87, as its issuer, Cir­cle, admit­ted that it held $3.3 bil­lion at SVB. With­in the cryp­to indus­try, Cir­cle is one of the bet­ter-known, “mature” play­ers, so the news under­stand­ably shook investors, forc­ing many to lose their con­fi­dence in cryp­tocur­ren­cies once again.

It is obvi­ous that the col­lapse of SVB and Sil­ver­gate has and will con­tin­ue to chal­lenge the cryp­to indus­try as a whole. In addi­tion to that, it has also cre­at­ed uncer­tain­ty as bank­ing part­ner­ships are cru­cial for the infra­struc­ture that enables cryp­to com­pa­nies to operate.

This is espe­cial­ly evi­dent with sta­ble­coins like USDC that rely on bank­ing part­ner­ships to ensure their val­ue is pegged to the U.S. dol­lar. But what does the col­lapse of a bank­ing part­ner mean for the future of sta­ble­coins and the over­all cryp­to industry?

Relat­ed: Blame tra­di­tion­al finance for the col­lapse of Sil­i­con Val­ley Bank

In gen­er­al, a col­lapse such as this can cause insta­bil­i­ty in the val­ue of a sta­ble­coin because of how depen­dent they are on real-life assets. How­ev­er, in the long run, a sit­u­a­tion like this could also put pres­sure on oth­er major cryp­to play­ers like Bit­coin (BTC) and Ether (ETH), which were down almost 10% in the after­math, with con­cerns grow­ing over a poten­tial liq­uid­i­ty short­age for the industry.

To top it all off, the col­lapse of SVB and Sil­ver­gate has also brought oth­er banks to a halt, mak­ing them less like­ly to endorse new rela­tion­ships with the cryp­to indus­try. This could make it more chal­leng­ing for cryp­to com­pa­nies to find sta­ble bank­ing part­ners in the future.

In essence, this whole sit­u­a­tion cre­ates a falling domi­no effect: When a major play­er in the cen­ter of a spi­ral that holds the group togeth­er starts to wob­ble (in this case, it was SVB and Sil­ver­gate), the rest of the con­struc­tion will fol­low suit once that cen­tral piece has fall­en to the ground.

The uncer­tain­ty and uneasi­ness that fol­lowed the col­lapse of both SVB and Sil­ver­gate are like­ly to have a knock-on effect on investor con­fi­dence, adop­tion and growth, which are essen­tial aspects in the fur­ther mass adop­tion of cryp­tocur­ren­cies. In addi­tion, with­out a sta­ble bank­ing part­ner, cryp­to com­pa­nies may strug­gle to com­ply with reg­u­la­tions, which has already been a key hur­dle for many cryp­to firms. In the end, cryp­to com­pa­nies will not be able to offer their ser­vices in a con­sis­tent man­ner, lead­ing to their total downfall.

Relat­ed: Why isn’t the Fed­er­al Reserve requir­ing banks to hold depos­i­tors’ cash?

What has also not been help­ful in this sit­u­a­tion is the fact that the SEC has been out to get cryp­to firms for a long time. SVB and Silvergate’s col­lapse means cryp­to firms will now be more vul­ner­a­ble to increased scruti­ny from reg­u­la­tors regard­ing their reliance on sta­ble­coins and bank­ing part­ner­ships. In addi­tion, this will also bring up wider impli­ca­tions for the tra­di­tion­al bank­ing industry’s rela­tion­ship with the cryp­to industry.

Why?

Because as the cryp­to indus­try con­tin­ues to grow, tra­di­tion­al banks may be forced to reassess their rela­tion­ships with cryp­to com­pa­nies and the risks asso­ci­at­ed with those relationships.

In the U.S., it seems the gov­ern­ment is active­ly try­ing to cease any cryp­to oper­a­tions by going against cryp­to com­pa­nies and banks and try­ing every­thing in its pow­er to shut them down. While this was not proven by any­one yet, spec­u­la­tions with­in the wider cryp­to com­mu­ni­ty con­tin­ue to arise, with a num­ber of cryp­to firms look­ing for bank part­ner­ships out­side Amer­i­can shores.

While the cryp­to com­mu­ni­ty has man­aged to regain most of its loss­es since the bank col­laps­es, the after­math lingers as a reminder of the chal­lenges the indus­try faces in the weeks and maybe even months to come.

Daniele Ser­vadei is the co-founder and CEO of Sel­l­ix, an e‑commerce plat­form based in Italy.

This arti­cle is for gen­er­al infor­ma­tion pur­pos­es and is not intend­ed to be and should not be tak­en as legal or invest­ment advice. The views, thoughts and opin­ions expressed here are the author’s alone and do not nec­es­sar­i­ly reflect or rep­re­sent the views and opin­ions of Cointelegraph.



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