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Questions Arise From The Signature Bank Closing

State regulators officially shut down and seized Signature on Sunday. But, something about this smells fishy.

Last week, we wrote about Silvergate’s demise and the opportunity it opened for Signature Bank.

In it, we talked about why we were optimistic about Signature’s prospects:

“The bank is much larger than Silvergate, boasting ~$115 billion in total assets versus Silvergate’s ~$11 billion

Signature is significantly more diversified (with only 20% crypto exposure vs ~100% for Silvergate)…

And, to top it off, the bank doesn’t make crypto-backed loans and has a long history with regulators…”

Despite these seemingly positive characteristics, state regulators officially shut down and seized Signature on Sunday.

So, for those keeping score at home, there have now been three crypto-friendly banks (Silvergate, Signature, and Silicon Valley Bank) that have collapsed in just the last week.

A Conspiracy Afoot?

The official stated reason for Signature’s seizure was to protect depositors and the U.S. financial system following $10 billion in withdrawals on Friday.

But, something about this smells fishy.

To begin, Signature executives had no idea a seizure was coming. The withdrawal rush had slowed by Sunday, and they believed the situation had stabilized. It’s not like this was a bank on the verge of collapse, as Silvergate and Silicon Valley Bank were. Their losses were nowhere near fatal. It wasn’t even in as dire a straits as First Republic Bank, which was never seized by the Feds and has since weathered the storm.

So, what gives?

Unfortunately, it looks like the regulators might be making an example out of Signature. As Signature board member and former congressman Barney Frank (yep, the “Frank” from the Dodd-Frank Act) put it:

“I think part of what happened was that regulators wanted to send a very strong anti-crypto message”.

Barney Frank

Naturally, the regulators refute this allegation. They say the seizure was due to a loss of confidence in the bank’s leadership and failure to provide consistent and reliable data.

Is that claim really believable, though, when even the FDIC was surprised about the decision to close Signature? Or is it more likely that this is the latest development in a string of moves to strangle crypto in the US, which crypto venture capitalist Nic Carter calls Operation Choke Point 2.0, named after the infamous 2013 effort to marginalize specific legal industries through banking pressures.

Who knows at this point. What we do know is that crypto banking just got a whole lot more difficult in the US.

Where To Bank Now?

There very well could come the day when crypto startups operate purely on-chain, free from the traditional banking system.

But that day is not here yet. Crypto companies still need to be able to move into and out of fiat. The problem is that finding a bank that deals with crypto companies is difficult, and even more so now that three of the more crypto-friendly banks are lying 6 feet under.

Thankfully, the crypto industry isn’t fully out of banking options.

According to DCG, Santander, HSBC, Deutsche Bank, BankProv, Bridge Bank, Mercury, Multis, and Series Financial are all still willing to bank crypto companies.

Add in Kraken’s soon-to-be-released bank, and there’s hope.

What will be more challenging to replace are the Silvergate Exchange Network (SEN) and SigNet. Both were key services for allowing crypto institutions and businesses to move money on and off-chain, and they don’t have an obvious successor.

Without these services, or something similar, it’s possible that liquidity on-chain gets a lot tighter, making it more difficult for institutions and clients to make trades.

Left Behind

While the US shoots itself in the foot regarding crypto innovation, other countries and jurisdictions are making a bid for crypto-focused business.

Hong Kong, UAE, Saudi Arabia, hell, even the UK are attempting to attract crypto companies to their shores.

Crypto is going to exist no matter what anyone does to try to stop it. Users simply will find a way. If US regulators truly want to protect consumers, they will work with the industry rather than force it into the hands of unfriendly and less sophisticated locales.