Will a trio of major bank failures dampen interest in blockchain technology? – Digital transactions

Signature Bank on Sunday became the latest domino to fall in a calculus that is expected to have wide-ranging ripple effects not only for banking, but also for the burgeoning cryptocurrency industry. The New York City-based bank, shut down by state regulators, is said to be the third largest bank failure in US history. Its collapse follows Friday’s closure of crypto-oriented Silicon Valley Bank, an action that represented the second-largest bank failure after Washington Mutual Bank, which fell victim to the 2008 financial crisis.

The failure of both institutions is a blow to the budding but troubled the cryptocurrency industry, when banks served as key ramps for customers looking to convert fiat money into Bitcoin and other cryptocurrencies. They also helped crypto startups looking for funding, observers say. The loss of Silicon Valley Bank, in particular, “will have a far-reaching impact” on the outlook for cryptocurrency, notes Cliff Gray, an analyst at The Strawhecker Group who follows the cryptocurrency business.

But the events of the weekend could have an even deeper impact, observers warn, on the prospects for widespread consumer acceptance of the blockchain technology that underpins cryptocurrency. “What the public is seeing is one failure after another,” says Gray, who also points to the November bankruptcy of the major digital currency exchange FTX.com and last week, Silvergate Financial Corp., another lender to crypto firms, collapsed.

Silvergate last February had agreed to pay $182 million in cash and stock to buy Diem Group, head of a stablecoin venture launched by Facebook Inc. in 2019 under the name Libra.

The events of the weekend “further cement into the public eye that this experiment in crypto is not working, which is too bad because blockchain is a revolutionary tool,” Gray notes. The news has also rattled investors, particularly as withdrawals helped spur the failure of SVB, the sixth-largest lender in the US.

In response to the Signature Bank emergency, the Federal Deposit Insurance Corp. on Sunday to set up a so-called bridge successor bank to allow customers to access their money on Monday. SVB customers will also be able to access deposits on Monday, Reuters reported. The news service also reported that “certain” unsecured debt holders at both banks would not be protected by the government’s action, while “senior management” at both institutions were let go.

Ironically, Gray says, the three banks were all striving for a bankless way to move money. But what they need now is traditional supervision.”