In March 2023, two well-known digital currency banks in the United States, Silvergate Bank and Signature Bank, declared bankruptcy, triggering a bank run and causing shockwaves in the digital currency market.
The liquidity crisis brought about by the drying up of bank funds not only had the appearance of a repeat of 2008, but also made many depositors start to worry about the safety of their deposits.
A single grain of sand in the hourglass of time can have a devastating impact on each of us. Today, Digital Reserve will lead us to explore the causes and consequences of this bank failure event, as well as its impact on us.
The industry positions of the two banks.
Silvergate Bank and Signature Bank are two major digital asset banks in the United States and play important roles in the digital asset industry.
Founded in 1988 and headquartered in San Diego, California, Silvergate Bank initially provided services to the traditional real estate market but expanded its business scope over time and focused on the digital asset industry. When cryptocurrencies and blockchain technology began to gain widespread attention, Silvergate Bank began to provide services for this emerging market. In 2013, the bank established a digital currency department and established partnerships with well-known cryptocurrency exchanges such as Coinbase, Bitstamp, and Kraken. In 2017, Silvergate Bank launched the Silvergate Exchange Network (SEN), which is a real-time payment system specifically designed for digital asset transactions. The bank also offers many other services, including digital asset mortgage loans and clearing services.
Founded in 2001 and headquartered in New York City, Signature Bank was originally a small commercial bank that primarily served individuals and small businesses. In 2009, the bank entered the digital asset field and launched its own digital asset payment platform, called Signet, in 2018. The platform uses blockchain technology to enable institutional clients to transfer digital assets quickly and securely within 24 hours and has become an important payment hub in the digital asset market.
The current status of the two banks.
Last week, Silvergate Bank voluntarily liquidated. In a statement, the company said,
“Given recent industry and regulatory developments, Silvergate believes an orderly wind down of banking operations and voluntary liquidation of the Bank is the best path forward.”
The company had previously offered its real-time payment service, Silvergate Exchange Network (SEN). With Silvergate’s liquidation, SEN also disappeared, making Signature Bank’s Signet platform one of the last places executing 24/7 crypto banking business. However, those hopes were seemingly dashed with the shutdown of Signature Bank on Sunday, causing major industry participants to seek alternative service providers.
As part of the liquidation announcement, Silvergate clarified that all other deposit-related services will continue to operate despite the company’s closure. Customers will be notified if there are any further changes. According to the liquidation plan shared on Wednesday, all deposits will be fully repaid. However, Silvergate did not say how it plans to resolve claims against its business.
Last week, Galaxy Digital rushed to sever ties with Silvergate after the bank warned that it was unsure if it could continue to operate.
Silvergate had been struggling for months. In addition to laying off 40% of its workforce in January, the company reported a net loss of nearly $1 billion in the fourth quarter of last year, and customer deposits plummeted 68% to $3.8 billion after an urgent exit at the end of last year. To pay for withdrawals, Silvergate had to sell $5.2 billion in debt securities.
Signet, the real-time payment platform of Signature Bank, which is popular among institutional-grade encryption customers, will continue to operate while the New York state regulator shuts down Signature Bank “to protect depositors” on Sunday. Signature Bank’s assets have been transferred to Signature Bridge Bank, a new intermediary entity that will be temporarily managed by the Federal Deposit Insurance Corporation (FDIC).
Signet is a proprietary blockchain-based digital payment platform launched on January 1, 2019. The service integrated with digital asset custodian Fireblocks in 2020 to facilitate the secure movement, storage, and issuance of digital assets. Although the closure of Signature Bank may prompt major players in the industry to look for alternative service providers, sources have revealed that Signet is still operating normally.
How to deal with.
“Two of the Bitcoin-friendly banks.”
In the long run, the closure of the three consecutive Bitcoin-friendly banks may pose a problem for Bitcoin. After all, Bitcoin is the largest cryptocurrency in the world, with a market capitalization of $422 billion.
“Bitcoin liquidity and crypto liquidity will be somewhat impaired overall, as Signet and SEN are critical to companies obtaining fiat currency over the weekend.”
Carter added that he hopes client banks can intervene to fill the gap left by SEN and Signet.
As a digital currency trading platform, Digital Reserve has always adhered to the principles of security, convenience, and reliability, ensuring the safety of customer assets, regardless of whether the industry is entering a hot summer or facing news of multiple bank failures.
Here are some suggestions from our years of experience in the industry, for our loyal clients and friends interested in fintech and cryptocurrencies:
Diversify asset storage: Store cryptocurrencies in different exchanges and wallets to reduce the risk of a single point of failure.
Digital Reserve can provide various wallet and exchange options to meet clients’ needs.
Strengthen security measures: Enhance platform security measures, including multi-factor authentication, password policies, phishing attack prevention, etc., to reduce the risk of hacking attacks.
Digital Reserve can invest more in security measures to protect clients’ digital assets.
Continuously monitor and analyze market trends: Keep a close eye on market trends and monitor the financial condition of relevant banks for timely analysis and decision-making.
Digital Reserve can dispatch a professional team to track market trends and monitor the condition of relevant banks.
In summary, Digital Reserve will take multiple measures to protect clients’ digital assets, continuously strengthen security measures and monitor market trends to ensure the safety of clients’ assets.
In addition to cryptocurrencies, our high-volume currency exchange services have not been affected by the current turbulence. We continue to provide stable and secure deposit and withdrawal services for mainstream currencies such as US dollars and Australian dollars for our clients.