The crypto ecosystem has always been built on the principles of decentralization, with no single entity in control of the finances of any given individual. With the shutdown of banking giants such as Signature Bank, Silicon Valley Bank (SVB), and Silvergate Bank, however, it has become clear that when it comes to crypto, traditional banking is often still a bridge between centralized finance and decentralized finance. This can create a serious obstacle for the industry in the short-term, as crypto companies often need to find new banking partners.
The immediate repercussions of these bank closures are already being felt. Dennis Adkins, a digital asset advisor and analyst, described the situation as a ‘fear-based reaction’ from the investors, who are uncertain of their options in the face of the banking turmoil. Silvergate and SVB were the more traditional banking institutions and had access to more resources, making them the favored option for crypto companies and their large sums of deposits. The subsequent uncertainty has rocked the industry and sent crypto liquidity into a downward spiral.
However, things are not all doom and gloom. The absence of large banking entities may also reveal some alternative solutions – such as smaller, more innovative banks that can bridge the gap and offer banking services to crypto companies that may have been previously excluded. There are still banks available in the US such as Cross River Bank, BankProv, and Western Alliance Bank that could potentially provide liquidity and help the industry. Even more, crypto companies can look abroad for other options, as well as utilize various strategies involving stablecoins.
Furthermore, this potentially positive turn of events presents the opportunity for crypto to fully realize its potential and aims of being completely decentralized. This can be achieved through on-chain banking, where banks resemble blockchains more so than centralized entities, allowing for greater on-chain metrics for cash management activities. With the emergence of new and improved technology, however, it also means that banking institutions that do not adapt quickly can be left behind.
It has been a common experience with each crypto bear cycle for the industry to experience shortfalls, though it is also the solutions implemented that allow for it to come out the other end stronger. This may ultimately be the case once more. Boris Revsin, managing partner at Tribe Capital, remarked that “The crypto industry has gone through banking shifts like this every cycle. We won’t see a shortfall of banks. More so, we will see a shortfall of legacy banks that support this tech.”
Throughout the chaos of banking closures in the crypto industry, there is a definite ray of hope – not only will the sector survive this current challenge, but it will come out stronger and more robust on the other end. Although the industry has been put at a disadvantage by the recent turnovers, the search is still on for alternative options and solutions that can provide a viable and resilient banking platform for the crypto world.
As Joshua Frank, co-founder and CEO of provider of information services for digital assets, The Tie remarked, “It would be shortsighted to assume that the events of the last few days will lead to a total divorcing of crypto and traditional banking.”
Crypto banking disruption may still be a tumultuous experience in the short-term, but if solutions can be found that can truly diversify and branch out, there is definite potential for a brighter future for the crypto industry.
The recent banking closures have put a serious dent in the operations of the crypto industry, but the silver lining to this cloud is that it also presents an opportunity for development, adaptation, and a brighter future. As crypto companies search for banking partners and solutions that can help the sector move forward, they must also remain open minded to ideas such as on-chain banking, the use of stablecoins, and even alternative options abroad. Every bear cycle comes with a set of obstacles, though as long as the right solutions can be found, the crypto world is likely to come out stronger on the other side.