Billions worth of crypto trades are at risk from the fallout from the collapse of Silicon Valley Bank

Last year alone, SEN processed $563.3 billion in remittances in US dollars, down from $787.4 billion during the 2021 bull period but still impressive. According to Silvergate, the network had nearly 1,700 customers at its peak in the third quarter of last year.

Already, the absence of SEN is taking its toll and making trading more difficult. According to research firm Kaiko, liquidity, or trade-friendliness, for bitcoin-to-dollar and bitcoin-to-tether transactions on some U.S. exchanges fell between 35 percent and 45 percent from early March to Saturday. Meanwhile, crypto companies have been looking for alternative banking and payment services.

“I wake up, my inbox is the first message I see from organizations looking for alternatives,” said Daryn Barney, founder of Role Fintech Partners, a company that helps crypto firms connect with banks.

Options as robust as SEN are few and far between. Signature operated Signet, SEN’s main US competitor, which enabled businesses to exchange payments in real time. Signature had said earlier this year that it was withdrawing deposits related to crypto companies.

Under regulatory pressure, other banks are capping deposits related to crypto companies to 10 to 15 percent and may levy fees if they face increased regulatory scrutiny. Without SEN, the cost of fiat conversions could increase by 20 to 40 percent, said Richard Crone, CEO of payment consultants Crone Consulting.

A few alternatives are emerging. Crypto trust companies that already own customer digital assets and have relationships with banks are considering entering the fray and providing SEN-like capabilities. BCB Group, which operates Blinc, a SEN-like payment network for crypto companies popular in Europe, hopes to launch soon with three or four banks in the US, von Landsberg-Sadie said.

“An unbanked business quickly becomes inoperable, and crypto companies are particularly vulnerable to this risk.”

Oliver von Landsberg-Sadie, co-founder of the BCB Group

According to von Landsberg-Sadie, BCB received more than 60 inquiries in the past week and is in the process of accepting new customers. Next week, the company plans to roll out dollar payment functionality to its first half-dozen customers, he said.

While some of these alternative networks may rely on a multitude of banks for support, some of these alternative networks may not have as many customers as SEN, and smaller exchanges and over-the-counter desks can “struggle without access to competition.” same liquidity and resources as before,” Crone said.

Before depegging USD coins, some argued that closing SEN could push institutions to adopt stablecoins more aggressively. Once dollars have been converted into stablecoins, users can use them to make payments to exchanges or blockchains. However, stablecoins carry their own risks. As the USD coin’s troubles showed, they are still connected to the traditional banking system and may be affected by its failures. And regulators are circling.

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“It’s less certain you trust these stablecoin issuers, this opaque operations tether,” said Conor Ryder, an analyst at Kaiko. “If you get every crypto company in the US to do this, that puts more pressure on regulators.” New York and federal agencies have already gone after a Binance-branded stablecoin, issued by Paxos Trust, known as BUSD, and said it was an unregistered security. Tether is issued by a private foreign firm that settled with the New York Attorney General and was fined by the Commodity Futures Trading Commission.

Further regulatory scrutiny of stablecoins — likely to be stepped up after USDcoin’s troubles — could not only limit their use, but also lead digital asset users to revert to slow, more expensive blockchain networks for over-the-counter token swaps between parties . For example, during peak times for the Ethereum blockchain, people sometimes spent more money on transaction fees than the non-fungible tokens they bought.

“It’s a bit more complex, you have to be more operationally solid,” said Cory Klippsten, CEO of automated bitcoin savings plan provider Swan Bitcoin. “It costs a little bit more for everyone.”

Bitcoin’s value rose the most in nearly a month after US authorities tried to contain concerns about the health of the nation’s financial system.

The largest cryptocurrency surged as much as 5.3 percent to $21,582, its biggest rise since Feb. 15, after US authorities pledged to fully protect all depositors’ money following the SVB collapse, while also protecting all banks who rely on cash to offer short-term more favorable terms loans.

“The Federal Reserve bailout has boosted market confidence and allayed concerns about the potential collapse of more players, especially given Signature is a big bank in the crypto industry,” said Rachel Lin, co-founder of SynFutures, a decentralized derivatives trading platform.

Other altcoins saw bigger gains, with Cardano up about 6.1 percent, Litecoin up 7.4 percent, Tron up 12 percent, and Avalanche up 6.7 percent. The USD coin traded at around 99 cents.

Bitcoin had posted its worst week since November as a stock sell-off, jitters in the banking sector and an escalating crackdown on crypto by US regulators combined to weigh on investor sentiment.

Bloomberg

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