Signature Bank Failure Sends Shockwaves Through the Crypto Industry

Signature Bank, a New York-based bank that has been focusing on the crypto industry for the past five years, was shut down by regulators on Sunday evening, US time. This has added to the growing list of major US bank failures in the last three days.

The bank started operations in 2001 and after the 2008 financial crisis, it became one of the investors’ favorite banks as it provided uncomplicated and prolonged services and bureaucracy. However, Signature Bank began focusing on the crypto industry in 2018 when it hired bankers specializing in crypto as part of its effort to expand beyond commercial real estate.

This move proved to be beneficial as other banks were reluctant to accept crypto customers. Eventually, Signature Bank became one of the leading banks in the crypto market. Its crypto focus helped the bank more than double the amount of its deposits in two years. As of early 2022, around 27% of the bank’s deposits are from crypto clients.

Unfortunately, bank exposure to crypto has become a problem over time. The collapse of the crypto market was exacerbated after the collapse of Sam Bankman-Fried’s crypto exchange, FTX, in November. This drained billions of dollars in reserves.

Late last year, Signature Bank said it was winding down and cutting business with some of its crypto clients. It even cut ties with the international business unit of Binance, the world’s largest crypto exchange. However, this move failed to reassure investors.

Things have gotten worse after last week’s collapse of Silvergate Capital Corp, another bank in the crypto space, and tech-focused Silicon Valley Bank (SVB). Signature Bank’s failure threatens to compound the crypto industry’s further exclusion from the regulated US banking system.

Some of the largest digital asset companies, including Circle Internet Financial Ltd., Coinbase Global Inc., and Payward Inc.’s Kraken, have been using Signature Bank. Late Sunday, several crypto firms held emergency meetings, and others sent messages to bankers as they looked for alternative institutions to hold deposits.

Jesse Powell, co-founder of crypto exchange Kraken, said the company may have to move some money around and find more banking partners. “It sucks so much I mean the entire industry has to lose two banks servicing the [crypto] industry for retail funding,” Powell said on Twitter.

Jeremy Allaire, chief executive of Circle, wrote on Twitter that his company will complete the transaction through Bank of New York Mellon Corp after Signature closes. Circle’s stablecoin plunged from its $1 peg last week due to concerns about the company’s banking partners. Jeremy Allaire said Circle will bring in banking partners for new deals as soon as Monday.

Signature shares had fallen 23% on Friday, their worst day since going public in 2004, and are down more than 75% in the last 12 months. Some customers, spooked by another company’s rapid collapse, started moving their money from the bank to other institutions in recent days.

Signature Bank had assets of US$ 110 billion and deposits of US$ 88.6 billion  at the end of 2022. Based on deposits, Signature was the 30th largest bank in the US last year.