(Bloomberg) — The closure of Signature Bank, a lender that counted a number of crypto companies as clients, marks another major setback for digital assets as the industry becomes increasingly 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 depositors will be able to access their funds on Monday.
The closure comes shortly after the double collapse of Silvergate Capital Corp. and Silicon Valley Bank. All banks were, at least at one point, rated among the most crypto-friendly US financial institutions.
Signature had begun withdrawing digital assets in the wake of the FTX exchange blowout, but still held $16.5 billion in crypto-related customer deposits as of March 8. Signature and Silvergate also enabled fast payments between clients such as hedge funds and exchanges. support the liquidity of digital assets.
Coinbase Global Inc., the US’s largest crypto exchange, said Friday night it had a $240 million balance in the bank. Paxos Global said it had $250 million there and that it has “private deposit insurance that is well above our cash balance and per-account FDIC limits.”
“Crypto is basically debanked, especially for 24/7 fast payment rails,” said Austin Campbell, an adjunct professor at Columbia Business School. He added that the most likely solution for the cryptocurrency is “looking at other jurisdictions in the future.”
Pull back
Signature operated Signet, a payment network that allowed commercial crypto customers to make real-time dollar payments anytime, 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 sending payments quickly to exchanges and merchants, or meeting payroll. LedgerX, a crypto derivatives platform, had previously instructed clients to send domestic transfers to Signature instead of Silvergate.
Circle Internet Financial Ltd., the issuer of the USDC stablecoin, has said it has $3.3 billion with Silicon Valley Bank and maintains transaction and settlement accounts for USDC with Signature. Circle Chief Executive Officer Jeremy Allaire tweeted that the company cannot process USDC minting and redemption through Signet and will be dependent on settlements through BNY Mellon.
Signet system
Coinbase integrated Signet to enable customers to transfer funds instantly last October.
In 2021, stablecoin TrueUSD was integrated into Signet for instant settlement. Signet also integrated with Fireblocks in 2020.
If Signet is decommissioned, users may struggle to get in and out of exchanges quickly, dramatically impacting the liquidity of the crypto market.
Ease of trading for Bitcoin-to-dollar and Bitcoin-to-Tether transactions on some U.S. exchanges fell between 35% and 45% between early March and Saturday, according to research firm Kaiko. Signature’s collapse is likely to increase the impact.
Prices of major digital assets rose Monday alongside a jump in US stock futures. US regulators have taken action to protect depositors’ funds following the collapse of Silicon Valley Bank and have created a new financial backstop to bolster investor sentiment.
Bitcoin, the largest token, was up more than 3% and was trading at around $22,200 at 7:58 a.m. Monday in Singapore. Ether in second place climbed more than 2%. Smaller tokens like Solana and Avalanche were also higher.
For crypto market prices: CRYP; for top crypto news: TOP CRYPTO.
–With help from Muyao Shen and Beth Williams.
(Update details of Coinbase and Paxos exposure in fifth paragraph and with adjunct professor comments in sixth paragraph.)
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