What crypto banks are left after the Silvergate explosion?

Leo

2023-03-09 13:17

Read this article in 12 Minutes

"As traditional finance becomes more worried about encryption, there are fewer banks to choose from."

Original title: Crypto Startups Scramble to Find Banks After Silvergate Meltdown

Leo, BlockBeats

With the Silvergate explosion, many crypto companies are looking for a way out, and VCS are working hard to recommend crypto receptive banks like Silicon Valley Bank, pairing crypto companies with new banks, but as traditional finance becomes more concerned about encryption, there are fewer banks to choose from. The Information published an article about "Crypto-friendly banking after Silvergate," and BlockBeats compiled it as follows:

Don't want to be defined as a crypto bank

Crypto companies need banks to operate, but it's getting harder and harder to find one.

The crypto industry has been hot in recent years. Many small banks instead embraced the fast-growing crypto industry, ignoring its risks. With FTX thundering, Silvergate Bank teetering and Signature Bank reducing the crypto clients it works with, both banks and crypto startups are in trouble.

For some crypto companies, whose customers need bank accounts to send money, they must move assets to a bank that accepts encryption, venture capital and Crypto executives told The Information, The most likely names are Silicon Valley Bank, Customers Bank and Mercury. But this only applies to large crypto companies, and for some small crypto startups, lack of credit endorsements, making it particularly difficult to find a crypto-friendly bank.

Sources told The Information that the impact of the crypto-friendly banks' demise on the big trading platforms and other established crypto companies is likely to be negligible because they are all affiliated with multiple banks, including some mainstream ones, that may allow them to increase deposits.

Coinbase, for example, has a banking relationship with jpmorgan Chase. (It was previously reported that jpmorgan had cut ties with Gemini.) For crypto startups, it's a different story, with one crypto VC telling The Information that where to turn has been a hot topic among VC firms in recent weeks, and that their firm has been pitching other banking partners on behalf of startups, Including Silicon Valley Bank and Mercury.

But some crypto startups have been hit harder and may have to find more "niche" partners. "It's getting harder and harder for smaller crypto startups to find new banking partners, and that's where the frustration comes in. They're going to get pushed into the second or third tier," said Matthew Homer, a venture capitalist, blockchain startup consultant and former regulator atthe New York State Department of Financial Services.

Part of Silvergate's appeal to the crypto industry is its payment system, Silvergate Exchange Network, which allows crypto companies and institutional investors to quickly send money to each other around the clock, before the bank shut down its system last week.

One executive at a crypto trading firm said it had been Fielding calls from clients such as hedge funds and crypto companies, some of whom have accounts with Silvergate, seeking advice on which crypto-friendly bank to switch to now and whether Silvergate could help connect them.

While Signature Bank has emerged as an alternative to Silvergate because it offers a similar payment network, Signet, it has shown little interest in doing more cryptography. In December, the company said it wanted to cut crypto-related deposits to less than 20 percent of total deposits, with an eventual goal of less than 15 percent. The bank's crypto-related deposits fell by $7.4 billion in Q2 -- about $18 billion, or one-fifth of its total deposits.

Investor pressure is driving the change at Signature, said Ian Sexsmith, chief portfolio manager and senior research analyst at Parnassus Investments, which owns about $150 million in the bank; Another motivation is the bank's other clients, such as asset management companies, law firms and healthcare providers, who are increasingly concerned about the bank's close ties to the crypto industry.

"They don't want to do it, they don't want to be defined as crypto banking."

Other encryption companies outlet

Customers Bank

While companies like crypto trading platforms don't necessarily need to use U.S. banks, having the Federal Deposit Insurance Co. Endorsed companies are attractive to their customers. Customers Bank is a good bet for crypto companies. The bank signed up many large crypto customers in early 2021 and offers a payment system similar to the Silvergate network, and sources close to the company say it has no plans to exit the crypto industry.

In addition, Customers Bank hired several Silvergate employees in January, including Robb Layfield, former head of Silvergate business development, and Daniel Devine, former vice president of Global Payments at Silvergate.

Silicon Valley Bank

Silicon Valley Bank notes in its 2022 annual report that it lends and accepts deposits and invests in crypto companies, but has "minimal exposure" to crypto customers. A spokesman for the bank said it was "not changing its plans to accept encryption for the time being".

Cross River Bank

Cross River Bank is one of the banks that has gained a foothold among crypto companies in recent years and counts Coinbase among its clients. "Cryptocurrency transaction processing and partnerships remain part of our product diversification and we allocate our resources based on compliance, market conditions and customer needs," a Cross River spokesperson previously said.

Mercury

Of course, crypto companies can also turn to fintech companies, which are not licensed banks themselves but can offer bank-like services. Mercury, for example, has done so through partnerships with Choice Financial Group and Evolve Bank & Trust partners to offer checking and savings accounts, wire transfers and other services. A spokesperson for Mercury told The Information that the company supports all startups, including those in the crypto industry, but will not work with trading platforms or BTC ATM providers.

Cooperation is possible, but not much

By catering to the crypto industry, Silvergate attracts a lot of deposits, which in turn gives them a cheap way to finance themselves with loans. But last week Silvergate said it may be "undercapitalised" and its ability to go as a going concern was in doubt.

(BlockBeats Note: Refer to (What does Silvergate have to do with encryption? What is the cause of the thunder?)

Us regulators have been standing in the way of crypto. Previously, the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation issued a joint statement on liquidity risks arising from the fragility of crypto markets, highlighting the liquidity risks of banking organizations associated with certain sources of funding for crypto asset-related entities. Regulators point to the interconnectedness of the crypto industry as exacerbating risks for banks that are overexposed. Just days later, Metropolitan Commercial Bank said it would "completely exit" the crypto industry.

Even banks that have long accepted big banks' reluctance to reach out to their customers are becoming wary, as Florida-based Surety Bank CEO Ryan James has been accepting and serving high-risk customers in areas like encryption, Cannabis and payday lending for years.

"It's ironic to me when you can't get a bank account for your legitimate business," James says. Surety Bank is open to taking on new crypto customers, but James said it is "very selective" and doesn't want encryption to make up too much of its overall business.