• Silvergate Capital is one of two key U.S. banks that works closely with the crypto sector.
• Regulatory challenges and fraud risks have made it difficult for crypto firms to access USD on- and off-ramps in the U.S. banking system.
• Silvergate has been at risk of a bank run since November due to its involvement with FTX and other crypto firms, leading to a 56% drop in stock price over the past two weeks.
Trouble Brewing In Crypto-Land
Overview
Developments around crypto on- and off-ramps have been heating up, as Federal Reserve Member Bank Silvergate Capital watched its depositors flee and its stock price plummet. Along with Signature Bank, Silvergate is one of the few U.S. banks that works closely with the crypto sector despite regulatory challenges and fraud risks in the industry which make it difficult for companies to access established USD on- and off-ramps. This situation has been ongoing since November after the collapse of FTX, as Silvergate played a role in servicing FTX and Alameda, leading to fears of a bank run resulting in a 56% drop in stock price over two weeks.
Key Players
Silvergate Capital is one of two key U.S banks that work closely with the crypto sector, along with Signature Bank, offering services such as deposits accounts, payments processing, and loan origination for digital asset customers totaling $9.8 billion worth of deposits so far according to their CEO Alan Laney’s statement on November 17th 2020.. Despite this impressive figure, FTX only accounted for less than 10% of these deposits meaning that even though they are at risk from liquidations due to leveraged loans being collateralized by bitcoin there isn’t an extreme reliance upon them as opposed to other institutions in the market .
Challenges & Fraud
The main reasons why there are so few entities willing to work with cryptocurrencies within regulated U.S banking systems is because of KYC/AML policies which lack regulation for offshore entities combined with issues involving unregistered security offerings & plenty of fraud throughout this industry; making it difficult for companies who are involved in money moving or processing payments/transactions .
Recent Events
Since November when it became apparent that Silvergate was helping FTX & Alameda gain access to USD rails their stock performance has decreased by approximately 56%. On top of this Laney attempted reassure markets via his statement that their current loan book hasn’t faced any losses or liquidations yet , however speculation still remains as investors fear potential bank runs if depositors begin fleeing from their institution .
Conclusion
The article highlights how trouble is brewing within cryptocurrency land concerning events taking place at Silvergate Capital which ultimately led up to a decrease in stock performance over recent weeks despite CEO Alan Laney’s attempts at reassuring markets regarding their current loan book ; emphasizing KYC/AML policy regulations alongside issues such as unregistered security offerings & rampant fraud are some major factors playing into why there are so few entities willing to deal within US based banking systems when involving cryptocurrencies .