The crypto landscape seems to have hit a new roadblock with Silvergate Bank, a Californian-based crypto bank, facing a liquidity crunch. Experts believe that this situation can trigger extreme volatility and investors’ scepticism, once again, post the FTX scandal.
According to Bitcoin.com, a Bitcoin exchange, tensions mounted over Silvergate’s future prospects post FTX debacle. On September 20, 2022, Silvergate stated that FTX constituted below 10% of its total deposits worth $11.9 billion from every digital asset customer. Furthermore, US Department of Justice (DOJ) is undertaking investigations over alleged links between Silvergate and Sam Bankman-Fried, co-founder, FTX. “I believe the impact of Silvergate Bank’s liquidity crisis on cryptocurrency ecosystem is significant. Silvergate has been offering financial services to cryptocurrency exchanges such as Coinbase and Kraken. As a result, the bank’s liquidity concerns might have a knock-on effect on the broader crypto market,” Rajagopal Menon, vice-president, WazirX, a cryptocurrency exchange, told FE Blockchain.
Market research has shown that the Silvergate Bank situation highlights importance of regulations for crypto-oriented organisations. Insights from The Motley Fool, a finance and investing company, mentioned that Silvergate’s shares sustained a 55.2% fall in value. The bank’s Securities and Exchange Commission (SEC) filing has focused on measures such as evaluating internal controls, concluding independent audits, and documenting major journal entries.
“I think regulations in the banking industry are crucial for the functioning of the economy. In the crypto sector, this is believed to be essential. As regulations become clearer, it can become easier for crypto exchanges to enter the market, offer more services, and safeguard users’ deposits,” Edul Patel, co-founder and CEO, Mudrex, a crypto-investing platform, stated.
Moreover, future predictions indicate that global governments and regulators will draft regulated practices to ensure a mainstream crypto approach. Crypto firms such as Crypto.com, Circle, Tether, Paxos, Microstrategy, among others, have released statements on discontinuing their relationship with Silvergate. Investors suggest that this development has uplifted the need for a global crypto regulatory framework to tackle such uncertainties.
“Even though Silvergate losses shouldn’t impact the industry, it still doesn’t make the landscape easier either. However, with institutional adoption and development of new technologies, it is likely that the crypto industry will continue to evolve and play a role in the global financial landscape,” Punit Agarwal, founder, KoinX, a crypto taxation platform, concluded.
