Although the cryptocurrency sector is still mourning the closure of the cryptocurrency-focused Silvergate Bank, another bank has also shuttered its doors.
After Silicon Valley Bank’s closure and Silvergate Bank’s voluntary liquidation, this closure is the third bank failure in less than a week.
Crypto-Friendly Signature Bank has closed.
According to Bloomberg, state authorities have closed down New York-based Signature Bank, which was well-known for being crypto-friendly and having a sizable number of clients from the industry, including Circle, Coinbase, and Fireblock. The Federal Reserve issued the statement and said that the shutdown was carried out to safeguard depositors.
The Board of Governors of the Federal Reserve System announced today that the New York authorities had shut down Signature Bank. Significantly, the Federal Reserve Board Governors have pledged that the bank deposits made by clients will be fully refunded to them.
As of December 31, 2022, Signature Bank has around $110.36 billion in total assets and roughly $88.59 billion in total deposits. It is an FDIC-insured commercial bank.
Signet, a payment network run by Signature, allowed clients using commercial cryptocurrencies to send payments in dollars in real-time, 24/7.
When it comes to immediately transmitting payments to exchanges and suppliers, or making payroll, Signet was many cryptocurrency users’ sole option after rival Silvergate’s SEN network was shut down in early March.
Last October, Coinbase integrated Signet to enable clients to send money instantly.
Stablecoin TrueUSD was linked with Signet in 2021 to allow for immediate settlements. In 2020, Fireblocks and Signet were also merged.
Users may struggle to quickly enter and exit exchanges if Signet is no longer operational, which would have a significant negative impact on the liquidity of the cryptocurrency market.
Fast transfers between clients, including hedge funds and exchanges, were also made possible by Signature and Silvergate, enhancing the liquidity of digital assets.
With the collapse of the FTX exchange, Signature had started to distance itself from digital assets, but as of March 8, it still had $16.5 billion in crypto-related client deposits.
The failure of Signature Bank hurts the cryptocurrency industry.
The largest cryptocurrency exchange in the US, Coinbase Global Inc., reported having a $240 million balance at the bank on Friday night.
Paxos Global reported having $250 million at Signature. Paxos Global and Binance have previously collaborated on the BUSD stablecoin. According to Paxos, it “holds private deposit insurance considerably over our cash balance and FDIC per-account restrictions,” in the tweet.
Circle CEO Jeremy Allaire said on Twitter that the company would stop utilizing Signet for USDC minting and redemption and instead start using BNY Mellon for settlements.
Kraken’s co-founder Jesse Powell said the company could need to reorganize its finances and seek out other banking partners.
In a Sunday Twitter Space, Mr. Powell stated, “It sucks I mean for the whole industry to have to lose two banks that are servicing the industry for retail funding.”
Significantly, the crypto-friendly bank saw a negative market closing on Friday with a roughly 32% decline in its share price. When Silvergate Bank stated it would cease operations, the bank’s problems began. With the demise of the tech-focused bank, Silicon Valley Bank, the problems escalated.
The closing of Signature Bank, which was renowned for its ardent backing of cryptocurrencies, will probably be perceived as yet another setback for the sector.