Collapse of three US lenders rattles crypto markets – The Irish Times
The closures of Signature Bank, Silicon Valley Bank (SVB) and San Diego-based regional lender Silvergate are sending shockwaves through digital asset markets, even as Irish and European regulators remain confident that the risks to the traditional financial system from a plunge in cryptoassets remain minimal.
Silvergate, which has become a mainstay of crypto companies in recent years, was forced to close its doors last week after a run on deposits.
The announcement came just days before Silicon Valley Bank, a significant investor in the Irish start-up sector through its partnership with the state-backed Irish Strategic Investment Fund, was taken over on Friday by the Federal Deposit Insurance Corporation, which is acting as receiver. .
Then on Sunday, the US Treasury Department announced that regulators in New York had shut down Signature Bank over the weekend due to systemic risks. The bank operated a payments network that allowed commercial crypto clients to make real-time payments in dollars and had $16.5 billion (€15.5 billion) in crypto-related client deposits as of March 8, Bloomberg reported on Monday.
The moves have rattled markets, with traditional banking stocks and crypto asset prices – still recovering from last year’s rout – falling in recent days. Austin Campbell, an adjunct professor at Columbia Business School in New York, told Bloomberg on Monday that “crypto has basically been de-banked” in the US as a consequence of the shutdowns.
On Friday, shares in the world’s largest crypto trading platform, Coinbase, which employs around 130 people in Dublin, fell 8 percent amid the general unrest. Over the weekend, the USDC stablecoin – a range of cryptoassets, linked to and backed by a liquid asset – was decoupled from the US dollar after the coin’s issuer, Circle, announced it had an exposure of $3.3 billion (€3.1 billion ) against SVB.
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Up around 24 percent this year, Bitcoin, the most popular crypto-asset by market capitalization, fell more than 8 percent to $19,289.57 (€18,132.66) in the five days before Sunday, but has since recovered after US financial authorities announced measures to guarantee money held in accounts at Silicon Valley Bank (SVB) and Signature Bank.
Investors are bracing for more turmoil in the days ahead. However, regulators, in Ireland and Europe more generally, argue that volatile crypto asset prices currently pose little systemic risk to the traditional financial system.
Governor of the Central Bank of Ireland Gabriel Makhlouf told an Oireachtas committee earlier this year that the threat posed by crypto to financial stability is “minimal” but “guardrails” are needed to protect consumers from risk. He said the risk is more present on the consumer side of the equation, adding that the assets are of “no social value whatsoever”.
Speaking to The Irish Times before Silvergate and Silicon Valley Bank were shut down, Sharon Donnery, the central bank’s deputy governor in charge of financial regulation, said there is “a lot of concern globally” about crypto and the threat it poses to financial stability.
However, she said: “I think the view at the moment is on the kind of wider big picture risk, it’s not yet a reason for a significant concern. But obviously the sector is getting bigger and more interconnected with the system and that’s the context [for the governor’s comments].”
To prepare for more volatility this week, investors and regulators are watching for signs of contagion in the broader financial market in the days and weeks ahead.
