<p>It has been a long day in the cryptoverse. After the collapse of the start-up-friendly Silicon Valley Bank, the panic soon spread from to the industry proper, with <a href=”https://www.financemagnates.com/cryptocurrency/signature-bank-collapse-coinbase-and-paxos-disclose-massive-exposure/” target=”_blank” rel=”follow”>the abrupt shutdown</a> of the New York-based Signature bank. A risky bet on crypto coupled with a bank run prompted regulators <a href=”https://www.financemagnates.com/cryptocurrency/svb-crisis-circle-escapes-usdc-depeg-with-regulatory-assurance/]” target=”_blank” rel=”follow”>to act immediately</a>.
While notable crypto players such as Coinbase and Paxos have <a href=”https://www.financemagnates.com/cryptocurrency/signature-bank-collapse-coinbase-and-paxos-disclose-massive-exposure/” target=”_blank” rel=”follow”>announced massive exposure</a>, industry participant GCEX, an FCA-regulated digital brokerage, has <a href=”https://www.financemagnates.com/institutional-forex/signature-bank-crisis-hits-fxcfds-as-gcex-discloses-limited-exposure/” target=”_blank” rel=”follow”>cited limited exposure</a> as well. Following the news, Finance Magnates reached out to the firm’s Founder and CEO, industry veteran Lars Holst, to get a behind-the-scenes glimpse into the drama. </p><p>What
is your initial reaction to the news of Signature Bank’s closure?</p><p>”I was very
surprised, We have been banking with Signature for years”, said Holst. “We received the press
release they issued on Thursday which highlighted their strong financial
position and high level of capital. We haven’t had any communication from them
since. In fact, I am still not very clear about why they had to close down.
There has been a much stronger news focus on Silicon Valley Bank, including
reasons for its collapse, but l have not seen any major reason behind Signature
Bank’s collapse.”</p><p>Given
that many crypto companies have struggled to secure traditional banking
partnerships, do you think that the collapse of the Silicon Valley and Signature Banks will make it even harder for
crypto companies to access banking services?</p><p>”It will
definitely make it harder for crypto companies to access traditional banking
services, especially US dollar banking services. It also
leads to the question about why crypto companies would want to secure
traditional banking partnerships if these banks are simply not open for
business. GCEX, for example, is regulated by the UK’s FCA, but we don’t have a
UK bank account. The knock-on effect of this latest news is that crypto companies will rely more heavily
on payment solutions providers and will move from direct banking relationships
to indirect banking relationships.”</p><p>Do you think Silicon Valley and Signature Bank’s collapse could
lead to increased interest in decentralized financial solutions?</p><p>Definitely.
Why bother with traditional banking if a US bank, which should be stable,
reliable and well-regulated, can collapse in this way? The collapse of
Silicon Valley Bank and Signature Bank will result in a lack of confidence in <a href=”https://www.financemagnates.com/fintech/education-centre/challenger-banks-and-their-impact-on-traditional-banking/” target=”_blank” rel=”follow”>the traditional banking system</a>. In fact, regional banks are already seeing
widespread fallout from the situation. I believe
crypto companies would rather partner with decentralized counterparties who
they can trust and rely on than turn to traditional banks, given the current
situation. The issue
we are seeing is all about the US banking system. The US banking system may now
see stronger regulation but <a href=”https://www.financemagnates.com/forex/2022-a-year-of-tightening-marketing-regulations-for-retail-brokers/” target=”_blank” rel=”follow”>the existing levels of regulation</a> already make it
hard to do business with them. The increasing regulation will change the
landscape, resulting in fewer banks in the US wanting to partner with crypto
businesses. Effectively, it will lead to a monopoly – which is exactly what the
US should be trying to avoid.”</p><p>Some have suggested that the Silicon Valley and Signature Bank’s
collapse was due in part to its heavy reliance on cryptocurrency-related
clients. How do you respond to this criticism, and how do you think other
banks can avoid similar pitfalls?</p><p>”The
collapsed banks probably had a higher proportion of crypto clients than
mainstream banks but they weren’t overly reliant on these crypto firms. Both
Silicon Valley Bank and Signature Bank were well-capitalized banks so
other factors clearly played a part here. The major pitfall was that clients
lost confidence in these banks and started to pull their money – and no bank
can sustain a run on it. The
unfortunate outcome is that traditional banking for cryptocurrency-related
clients will get more expensive. There will also be fewer banks open to
business for crypto-related clients which will create a monopoly, killing
innovation”.</p><p>Do you think that traditional banks and crypto companies can find
ways to work together more effectively, or do you see a future where
decentralized financial solutions dominate the landscape?</p><p>”It is up
to the traditional banks if they want to find ways co-operate. If
they do, then they need to be open to change. If they don’t want to co-operate,
then crypto companies will seek alternative routes. Crypto
firms are disrupting the financial services sector, with cryptos eroding the
current market in many ways in order to create a more efficient financial
services sector. Unfortunately, the banks see crypto companies as
competition and don’t have an interest in change. Instead, they want to
protect their franchise and stick to the status quo. Until one or more traditional
banks see a real opportunity here and embrace change, then <a href=”https://www.financemagnates.com/cryptocurrency/defi-starts-2023-with-a-jump-but-will-the-momentum-last/” target=”_blank” rel=”follow”>decentralized
financial solutions</a> will begin to dominate the landscape. If traditional banks are unattractive to crypto
companies, then crypto firms will find alternatives. This will drive innovation
and result in new business opportunities.”</p><p>Who do you think the
successors of SVB and Signature Bank will be?</p><p>”In terms of a bank as a successor to
SVB or Signature Bank, I think it will be a UAE bank”.</p>
This article was written by Solomon Oladipupo at www.financemagnates.com.
