‘Crypto-friendly’ Signature Bank’s closure another blow to industry after SVB, Silvergate collapse

The closure of Signature Bank, a lender that counted a number of crypto companies as customers, marks another major setback for digital assets as the industry becomes ever more cut off from the banking system.

The Treasury Department said Signature Bank was closed by New York state regulators Sunday and that depositors will have access to their money Monday.

The shutdown comes soon after the twin collapses of Silvergate Capital Corp. and Silicon Valley Bank. All the banks were, at least at one point, counted among the US’s most crypto-friendly financial institutions.

Signature had begun a pull back from digital assets in the wake of the blowup of the FTX exchange but still had $16.5 billion in crypto-related client deposits as of March 8. Signature and Silvergate also enabled fast payments between customers like hedge funds and exchanges, supporting digital-asset liquidity.

Coinbase Global Inc., the US’s biggest crypto exchange, said on Friday night that it had a $240 million balance at the bank. Paxos Global, which had previously partnered with Binance on the BUSD stablecoin, said it had $250 million at Signature. In the tweet, Paxos said it “holds private deposit insurance well in excess of our cash balance and FDIC per-account limits.”

“Crypto has basically been de-banked, especially for 24/7 fast payments rails,” said Austin Campbell, an adjunct professor of Columbia Business School. He added that the most likely solution for the crypto is “to look to other jurisdictions going forward.”

Pull Back

Signature ran Signet, a payment network that allowed commercial crypto clients to make real-time payments in dollars at any time, seven days a week.

After the shutdown of rival Silvergate’s SEN network in early March, Signet was the only game in town for many crypto customers when it came to quickly sending payments to exchanges and vendors, or meeting payroll. LedgerX, a crypto derivatives platform, earlier instructed clients to send domestic wire transfers to Signature instead of Silvergate.

Circle Internet Financial Ltd., the issuer of the USDC stablecoin, has said that it has $3.3 billion at Silicon Valley Bank and maintains transaction and settlement accounts for USDC at Signature. Circle’s Chief Executive Officer Jeremy Allaire tweeted that the company won’t be able to process minting and redemption of USDC through Signet and will be relying on settlements through BNY Mellon.

Signet System

Coinbase integrated Signet to allow clients to instantaneously transfer funds last October.

Back in 2021, stablecoin TrueUSD integrated into Signet for instant settlements. Signet also integrated with Fireblocks in 2020.

If Signet goes out of commission, users may have trouble getting rapidly in and out of exchanges, dramatically impacting crypto-market liquidity.

Already, ease of trade for Bitcoin-to-dollar and Bitcoin-to-Tether transactions on some US exchanges has dipped between 35% and 45% from the beginning of March to Saturday, according to research firm Kaiko. Signature’s collapse is likely to increase the impact.

The prices of major digital assets climbed on Monday alongside a jump in US equity futures. American regulators have moved to protect depositors’ funds following the collapse of Silicon Valley Bank and set up a new financial backstop, shoring up investor sentiment.

Bitcoin, the largest token, rose more than 3% and was trading at about $22,200 as of 7:58 a.m. in Singapore on Monday. Second-ranked Ether climbed over 2%. Smaller tokens like Solana and Avalanche were also higher.