The crypto bros are fast becoming unbankable, by Lionel Laurent
literally becoming bankless and unbankable. By abruptly bundling crypto-friendly Signature Bank — one of the last of its kind — into receivership amid an extraordinary weekend operation to backstop the US banking system, regulators are sending a message that volatile tokens and decentralised finance need to be kept far away from TradFi. Given echoes of the global financial crisis and with market jitters spreading around the world, that’s no bad thing.
Regulators have been warning for some time of the myriad crypto risks seeping into the mainstream banking system, comparing them directly to the US$1.3-trillion subprime mortgage market that incentivised greed, exploited regulatory arbitrage and eventually led to the 2008 economic meltdown.
The past week’s events showed they were right to worry. The first domino to topple, Silvergate Capital, shows some lenders were recklessly chasing growth where bigger rivals feared to tread. Like Signature, it offered a popular on- and off-ramp between fiat and crypto payments, which had accumulated $11.9-billion in digital deposits by September.
The common thread here is that crypto is a “new element”, destabilising finance and effectively accelerating and multiplying bank runs, that wasn’t there in 2008, as Signature board member Barney Frank has said. It even had a role to play in Silicon Valley Bank’s collapse, alongside broader issues such as concentration risk within the venture capital community and badly managed interest-rate risk. When stablecoin customer Circle tried to unsuccessfully yank $3.
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