Signature Bank Collapse Sparks Concerns and Highlights Crypto Resilience
Signature Bank, a key player supporting cryptocurrencies, has become the latest financial institution to fail. Based in New York, its downfall marks a pivotal moment, underscoring the unstoppable nature of cryptocurrencies as suggested by industry experts.
The collapse, which occurred over the weekend, is part of a broader wave of bank failures that have rattled global financial markets, fueling fears of an impending banking crisis.
The crypto industry has been hit particularly hard, as Signature Bank was a vital partner for many companies in the sector.
Despite assurances from Treasury Secretary Janet Yellen about “decisive actions” to restore confidence in the banking system, shares of major US banks suffered significant declines during Monday’s Wall Street trading session.
Shortly before the weekend, Signature Bank’s problems emerged following the collapse of two other banks that focused on technology and cryptocurrencies, namely Silvergate Capital and Silicon Valley Bank.
Silvergate Capital is widely recognized as one of the most supportive banks for cryptocurrencies in the US, having worked with many leading crypto companies, such as MicroStrategy owned by Michael Saylor. The bank suffered heavily from the decline of FTX in November last year, which resulted in a run that compelled it to sell $5.2 billion in debt securities at a loss.
We did an article on this here.
On the other hand, Silicon Valley Bank is a significant banking partner for California-based startups and venture capitalists and has been employed by Circle, the issuer of USDC. The bank’s collapse has now become the second-largest bank failure in US history.
We did an article on this here.
The forced closure of Signature Bank was technically instigated by the government, as regulators took action on Sunday to shut down the bank.
As a result of this regulatory action, all depositors of the bank will be fully compensated, as was promised to depositors of Silicon Valley Bank by the government. Furthermore, in a joint statement, US regulators stated that taxpayers would not incur any losses.
“Shareholders and certain unsecured debt holders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law,” the statement said.
However, even though companies in the crypto industry have expressed a pessimistic outlook, spot bitcoin prices have risen sharply on Monday. This increase could be attributed to depositors seeking a secure haven from the collapse of banks.
The emergence of Bitcoin can be traced back to the Global Financial Crisis, as it was created in response by an anonymous individual who went by the name Satoshi Nakamoto. They envisaged a payment system that was decentralised and transparent, free from the control of large banking conglomerates.
Ironically, Bitcoin and other cryptocurrencies have become heavily intertwined with the Stock Market 2.0, rather than the financial utopia Nakamoto had envisioned. As recent events have demonstrated, the value of these digital assets is still heavily influenced by banks and consumer confidence.
Maybe we will see a decoupling from the stock markets?
Notably, the rise of Bitcoin was also inspired by the gold standard, which has since been abolished. Similar to gold, Nakamoto aimed to create a stateless cryptocurrency that could be used globally and had limited supply. Currently, there are only 21 million Bitcoin, and not all of them have been mined. This scarcity is comparable to how banks and governments cannot create more gold.
With the scarcity only getting reduced with the incoming halving, and banks seeming rather unstable, will more and more people flock to Bitcoin as a safe haven?
So far, they are.
Bitcoin is up 24% as of writing since Friday, with more possible gains to come if there is favourable CPI data released tomorrow.
Shortly before the weekend, Signature Bank’s problems emerged following the collapse of two other banks that focused on technology and cryptocurrencies, namely Silvergate Capital and Silicon Valley Bank.
Silvergate Capital is widely recognized as one of the most supportive banks for cryptocurrencies in the US, having worked with many leading crypto companies, such as MicroStrategy owned by Michael Saylor. The bank suffered heavily from the decline of FTX in November last year, which resulted in a run that compelled it to sell $5.2 billion in debt securities at a loss.
We did an article on this here.
On the other hand, Silicon Valley Bank is a significant banking partner for California-based startups and venture capitalists and has been employed by Circle, the issuer of USDC. The bank’s collapse has now become the second-largest bank failure in US history.
We did an article on this here.
The forced closure of Signature Bank was technically instigated by the government, as regulators took action on Sunday to shut down the bank.
As a result of this regulatory action, all depositors of the bank will be fully compensated, as was promised to depositors of Silicon Valley Bank by the government. Furthermore, in a joint statement, US regulators stated that taxpayers would not incur any losses.
“Shareholders and certain unsecured debt holders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law,” the statement said.
However, even though companies in the crypto industry have expressed a pessimistic outlook, spot bitcoin prices have risen sharply on Monday. This increase could be attributed to depositors seeking a secure haven from the collapse of banks.
Bitcoin’s Rise as a Safe Haven During Financial Instability
The emergence of Bitcoin can be traced back to the Global Financial Crisis, as it was created in response by an anonymous individual who went by the name Satoshi Nakamoto. They envisaged a payment system that was decentralised and transparent, free from the control of large banking conglomerates.
Ironically, Bitcoin and other cryptocurrencies have become heavily intertwined with the Stock Market 2.0, rather than the financial utopia Nakamoto had envisioned. As recent events have demonstrated, the value of these digital assets is still heavily influenced by banks and consumer confidence.
Maybe we will see a decoupling from the stock markets?
Notably, the rise of Bitcoin was also inspired by the gold standard, which has since been abolished. Similar to gold, Nakamoto aimed to create a stateless cryptocurrency that could be used globally and had limited supply. Currently, there are only 21 million Bitcoin, and not all of them have been mined. This scarcity is comparable to how banks and governments cannot create more gold.
With the scarcity only getting reduced with the incoming halving, and banks seeming rather unstable, will more and more people flock to Bitcoin as a safe haven?
So far, they are.
Bitcoin is up 24% as of writing since Friday, with more possible gains to come if there is favourable CPI data released tomorrow.
