Original title: Crypto Startups Scramble to Find Banks After Silvergate Meltdown

作者：Aidan Ryan, Akash Pasricha and Michael

Original translation: Leo, BlockBeats

 

With the collapse of Silvergate, many crypto companies need to find a way out. Venture capitalists are also trying to recommend crypto-friendly banks like Silicon Valley Bank to pair crypto companies with new banks. However, as traditional finance becomes more concerned about crypto, there are fewer and fewer banks to choose from. The Information published an article about "Crypto-friendly banks after Silvergate", which BlockBeats compiled as follows:

 

Don’t want to be defined as a crypto bank

 

Crypto companies need banks to operate, but the reality is that it is becoming increasingly difficult to find a crypto-friendly bank.

In recent years, the crypto industry has been booming. Many small banks have turned to embrace the rapidly growing crypto industry, ignoring its risks. With FTX's collapse, Silvergate Bank's shaky situation, and Signature Bank's reduction of its crypto clients, both banks and crypto startups are in trouble.

For some crypto companies, their customers need bank account remittances, and they must transfer assets to banks that can accept cryptocurrencies. Venture capital and crypto executives told The Information that the most likely banks are Silicon Valley Bank, Customers Bank, and Mercury. But this is only for large crypto companies. For some small crypto startups, it is particularly difficult to find a crypto-friendly bank due to the lack of credit endorsement.

Sources told The Information that the demise of crypto-friendly banks may have little impact on large trading platforms and other established crypto companies, as these companies are tied to multiple banks, including some mainstream banks, which may allow them to increase deposits.

Coinbase, for example, has a banking relationship with JPMorgan Chase. (JPMorgan has reportedly cut ties with Gemini.) For crypto startups, the situation is very different, and one crypto VC told The Information that where to turn has been a hot topic among VCs in recent weeks, and their firm has been making introductions to other banking partners on behalf of startups, including Silicon Valley Bank and Mercury.

But some crypto startups have been hit harder, and they may have to look for more "niche" partners. Matthew Homer, a venture capitalist, blockchain startup consultant, and former regulator of the New York State Department of Financial Services, said: "It's getting harder and harder for smaller crypto startups to find new bank partners, and that's the frustrating point. They will be pushed to the second or third tier."

Part of Silvergate’s appeal to the crypto industry was its payment system, the Silvergate Exchange Network, which allowed crypto firms and institutional investors to quickly send money to each other 24 hours a day, before the bank shut down its system last week.

An executive at a crypto trading firm said the company has been receiving calls from clients such as hedge funds and crypto companies, some of which have accounts with Silvergate, who are seeking advice, such as which crypto-friendly bank to turn to now and whether Silvergate can help connect them.

While Signature Bank has emerged as an alternative to Silvergate as it offers a similar payment network, Signet, it has shown little interest in more crypto businesses. In December, the company said it wanted to cut crypto-related deposits to less than 20% of total deposits, with the ultimate goal of cutting them to less than 15%. The bank’s crypto-related deposits fell by $7.4 billion in the second quarter of last year — about $18 billion, or one-fifth of its total deposits.

Ian Sexsmith, chief portfolio manager and senior research analyst at Parnassus Investments, which holds about $150 million in the bank, said investor pressure drove the changes at Signature; another motivation was that the bank's other clients, such as asset management companies, law firms and healthcare providers, have become increasingly concerned about its close ties to the crypto industry.

“They don’t want to do that and be defined as a crypto bank”

 

Other crypto companies’ solutions

 

Customers Bank

While companies like crypto trading platforms don't necessarily need to use U.S. banks, having a company backed by the Federal Deposit Insurance Co. is attractive to its customers. Customers Bank is a good choice for crypto companies, which signed up many large crypto customers in early 2021 and provides a payment system similar to the Silvergate network, and people familiar with the matter revealed that the company does not plan to exit the crypto industry.

Additionally, Customers Bank hired several Silvergate employees in January, including former Silvergate head of business development Robb Layfield and former Silvergate vice president of global payments Daniel Devine.

 

Silicon Valley Bank

Silicon Valley Bank noted in its 2022 annual report that it lends and accepts deposits from crypto companies and invests in them, but has "minimal exposure" to crypto clients. A spokesperson for the bank said that "the bank will not change its plans to accept crypto for the time being."

 

Cross River Bank

Cross River Bank is a bank that has established a foothold in crypto companies in recent years, and Coinbase is also one of its customers. A Cross River spokesperson previously stated: "Cryptocurrency transaction processing and partnerships remain part of our product diversification, and we will allocate our resources based on compliance, market conditions and customer needs."

 

Mercury

Of course, crypto companies can also turn to fintech companies, which are not licensed banks themselves but can provide bank-like services. For example, Mercury provides checking and savings accounts, wire transfers and other services through partnerships with Choice Financial Group and Evolve Bank & Trust. A spokesperson for Mercury told The Information that the company supports all startups, including those in the crypto industry, but will not work with trading platforms or BTC ATM providers.

 

Cooperation is possible, but not much

 

Silvergate has attracted a large number of deposits by catering to the crypto industry, which in turn provides them with a cheap way to finance loans. But last week, Silvergate said it may be "undercapitalized" and its ability to continue as a going concern was questioned.

U.S. regulators have always been a "stumbling block" standing in front of cryptocurrencies. Previously, the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation issued a joint statement on the liquidity risks caused by the fragility of the crypto asset market, emphasizing the liquidity risks of banking organizations related to certain sources of funds for crypto asset-related entities. Regulators pointed out that the interconnectedness of the crypto industry exacerbates the risks faced by banks with excessive exposure. Just a few days later, Metropolitan Commercial Bank said it would "completely withdraw" from the crypto industry.

Even banks that have long accepted customers that big banks are reluctant to touch are starting to get cautious. Ryan James, CEO of Florida-based Surety Bank, has been accepting and servicing high-risk customers in areas such as crypto, cannabis and payday loans for years.

“It’s kind of ironic to me when you have a legitimate business that can’t get a bank account,” James said. Surety Bank is open to taking on new crypto customers, but James said it’s “very selective” and doesn’t want crypto to make up too much of its overall business.