(Bloomberg) — The closure of Signature Bank, a lender that counted several crypto companies as customers, has dealt another major blow to digital assets as the industry becomes further cut off from the banking system.
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The Treasury Department said Signature Bank was shut down by New York state regulators on Sunday and that depositors would have access to their money on Monday.
The shutdown came shortly after the twin collapses of Silvergate Capital Corp and Silicon Valley Bank. All banks were, at least at one point, counted among America’s most crypto-friendly financial institutions.
Signature began withdrawing from digital assets in the wake of the FTX exchange explosion, but as of March 8 still held $16.5 billion in crypto-related client deposits. Signature and Silvergate also enable faster payments between clients such as hedge funds and exchanges, supporting digital-asset liquidity.
Coinbase Global Inc, the largest US crypto exchange, said on Friday night that it had a balance of $240 million in the bank. Paxos Global, which previously partnered with Binance on the BUSD stablecoin, said it had $250 million in signings. In the tweet, Paxos said that “Private Deposit Insurance exceeds our cash balance and FDIC limits per account.”
“Crypto has been basically de-banked, specifically for 24/7 fast payment rails,” said Austin Campbell, an assistant professor at Columbia Business School. He added that the most likely solution for crypto is to “look at other jurisdictions moving forward”.
Signature ran Signet, a payments network that allowed commercial crypto customers to make real-time payments in dollars any time, seven days a week.
Following the shutdown of rival Silvergate’s SEN network in early March, Signet was the only game in town for many crypto customers when it came to quickly sending payments to exchanges and vendors or getting payroll. LedgerX, a crypto derivatives platform, previously instructed customers to send domestic wire transfers to Signature instead of Silvergate.
Circle Internet Financial Ltd., the issuer of the USDC stablecoin, said it holds $3.3 billion in a Silicon Valley bank and maintains transaction and settlement accounts for USDC at Signature. Circle CEO Jeremy Allaire tweeted that the company will not be able to process the mint and redemption of USDC through Signet and will rely on settlement through BNY Mellon.
Coinbase integrated Signet to allow customers to transfer funds instantly last October. Back in 2021, the stablecoin TrueUSD was integrated into Signet for instant settlement.
Fireblocks, a digital-asset custody, transfer and settlement platform, said it currently has no exposure to Signature Bank.
If Signet falls out of commission, users may have trouble getting in and out of exchanges faster, dramatically affecting crypto-market liquidity.
Already the ease of trading for bitcoin-to-dollar and bitcoin-to-tether transactions on some US exchanges has fallen between 35% and 45% since the start of March as of Saturday, according to research firm KYCO. The effect is likely to increase with the fall of the signature.
Major digital asset prices climbed on Monday in tandem with a jump in US equity futures. US regulators have moved to protect depositors’ funds following the collapse of a Silicon Valley bank and installed a new financial backstop, bolstering investor sentiment.
Bitcoin, the largest coin, was up nearly 5% and was trading at $22,530 as of 9:46 am in Singapore on Monday. Second-placed Ether climbed more than 3%. Smaller coins such as Solana and Avalanche were also higher.
For crypto market prices: CRYP; For top crypto news: Top Crypto.
— With assistance from Muyao Shen and Beth Williams.
(Updated with comment from fireblocks in 11th paragraph.)
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