How Crypto De-Banking Will impact Bitcoin and the Industry

- Long-Term Effects of The Collapses: What Do the Experts Say?

- Could Cryptocurrency Be Under Attack?

- Could Money Be Moving from Banks to Bitcoin?

- Conclusion

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The cryptocurrency industry faces its reckoning, which will impact the investment landscape and speak to its fundamental value proposition.

Silvergate Capital, the parent company of crypto-focused Silvergate Bank, Silicon Valley Bank (SVB), and Signature Bank, faces severe financial issues.

Silvergate, SVB, and Signature, three of the cryptocurrency industry's most trusted financial operations, have suffered significant operational difficulties in the past few days.

Silvergate Capital, one of the largest lenders to the cryptocurrency industry, has announced that it will be closing down its operations and liquidating its bank, according to CNBC.

As a result of depositor withdrawals of more than $42 billion, Silicon Valley Bank, a leading lender to entrepreneurs, has collapsed.

Banking regulators seized Silvergate along with Signature, which had a strong crypto focus but was much larger than Silvergate.

Adding to the chaos in the broader cryptocurrency market, Circle's USDC stablecoin peg reportedly broke, with about $3.3 billion trapped at SVB.

On 12 March 2023, the U.S. Government announced that the Federal Reserve, Treasury, and Federal Deposit Insurance Corporation (FDIC) would intervene to protect depositors' funds at SVB and Signature Bank. Bitcoin and other prominent cryptocurrencies suffered due to these developments last week.

Fast Company reported that bitcoin, Solana, and Ethereum were down nearly 10% as of this writing. Dogecoin is down over 10%, and Binance is down almost 8%.

Nevertheless, BTC investors appear to have rallied since the initial dip.

Forbes reports that bitcoin and crypto markets have rebounded since the U.S. government intervened. Bitcoin and Ethereum have recovered the ground they lost, and Circle's USDC stablecoin has regained its dollar peg.

While the initial impact on bitcoin prices caused by the failure of these financial institutions highlights a stark truth, it is still important to acknowledge that even the first and most valuable crypto asset, which is based on a decentralized and trustless international network that no one can control, has become increasingly intertwined in a complex ecosystem of other digital assets and crypto-based enterprises that are highly dependent on single points of failure.

The success of Bitcoin depends mainly on widespread adoption, with ordinary people using it for everyday transactions.

Yet intermediaries such as these failed institutions and the companies that use them to provide Bitcoin services remain integral parts of the Bitcoin market.

Hence, failures with those intermediaries can negatively impact assets whose foundations are supposed to protect them.

Long-Term Effects of The Collapses: What Do the Experts Say?

According to Petr Kozyakov, co-founder and CEO of Mercuryo, the failures of banks will likely have negative long-term consequences. "Besides a potential decrease in the digital asset market capitalization, recent events will likely undermine trust in crypto-friendly financial institutions, slowing down the development of the relationships between TradFi and cryptocurrency players."

Kozyakov pointed out that Silvergate and Signature were leading providers in their fields. It is now necessary for digital asset projects to find new banking partners.

"The failures created a crucial gap that could complicate access to crypto," Kozyakov said. "With SVB holding over $5 billion for large crypto VCs, its collapse could also harm startup investments."

According to some, there is a resurgence of the debate over whether or not crypto banking should be incorporated into the existing financial system.

Could Cryptocurrency Be Under Attack?

A few in the industry question regulators' intentions to shut down Signature - one of the latest crypto-friendly financial institutions.

It appears authorities are using the broader crisis facing the banking system as a pretext to shut down one of the few remaining crypto-focused banks in the United States, according to Dave Weisberger, CEO and co-founder of CoinRoutes. The circumstances following the closure of Signature are unclear.

Weisberger said, "This was done so abruptly — and with relatively little communication as to why — that many in the digital asset industry are concerned that this was done intentionally to dissuade people from investing in crypto."

It was a sentiment shared by many. The CEO of crypto research firm Messari, Ryan Selkis, tweeted: "Crypto's banking rails have been effectively shuttered in less than a week."

Could Money Be Moving from Banks to Bitcoin?

While this situation is not all gloom and doom, some experts note that it has another (unintended but welcomed) consequence of highlighting the asset's importance.

"I believe we will look back at this event as a seminal moment in the history of bitcoin," Weisberger said.

Conclusion

Bank rails in the crypto industry will undoubtedly suffer for the short term; however, from a holistic viewpoint, bitcoin is poised to flourish as people move away from banks and into bitcoin, said Danny Oyekan, the founder and CEO of Dan Holdings and Blockfinex, a digital asset exchange.

Bitcoin was created to provide a shelter for these types of financial crises, Oyekan explained. "And so, the value proposition for bitcoin will only increase because of what's happening. I have many friends worldwide moving their assets into crypto as fast as they can."

Crypto investors should note how these dynamics can play out when considering crypto exposure. Over the years, bitcoin has been through ups and downs and weathered storms far worse than this one, always coming back stronger.

Sources: www.washingtonpost.com, cointelegraph.com, finance.yahoo.com, www.cnbc.com, www.federalreserve.gov, www.fastcompany.com, twitter.com