Cryptocurrency Needs Improvement Before Attracting The Unbanked – Industry Executives
The decline of Silvergate, Silicon Valley Bank (SVB), and Signature has impacted digital assets negatively. However, Alex Liu—CEO of Maicon, and William Quigley — CEO of WAX, proposed that if the cryptocurrency industry matures better, it may eventually collaborate with major banks.
The cryptocurrency industry was rocked by the deliberate insolvency of Silvergate, a prominent bank for the sector, and the subsequent regulatory measure to seize SVB (another important bank for this sector). Although depositors will be fully compensated, the impact felt by the industry is no longer focused on the idea of losing funds but rather on the drastic reduction in industry-friendly financial institutions.
Crypto-Friendly Banks’ Collapse
In contrast to many large, well-known banks that typically refuse to work with small to medium venture funds, cryptocurrency companies, tech startups, or exchanges, Silvergate, Signature, and SVB valued these clients. The demise of these three institutions has affected every player in the crypto industry.
During a recent chat, William Quigley, co-founder of Tether and CEO of NFT (non-fungible token) exchange WAX, said that banking would pose a challenge for the foreseeable future. He also expressed disappointment with the current management of Tether, a company he left in 2015.
Quigley noted that banks made a poor decision by holding long-term, low-interest government debt and being forced to sell it at lower prices to address liquidity issues when startup clients reduced their fundraising. However, he believes this should have been a challenge rather than a fatal blow.
Per Quigley, the recent strange occurrence in Silicon Valley is not unprecedented in its history. He noted that there had been instances where a surge of money flowed into a sector and in a bank like SVB and was subsequently used to pay off companies’ payrolls, ultimately leading to losses.
Taking Notice Of The Situation
According to Quigley, this is how the system typically operates. Quigley believes that someone in management should have taken notice of the situation in June last year and should have either sold off the portfolio to minimize the losses or increase deposits.
Drawing on his experience as an audit committee and bank chairman, the Tether co-founder mentioned that he knows the conversations that occur when deposit rates decline at a rapid pace and the investment portfolio significantly dips to the extent that there aren’t enough funds to pay depositors.
According to Quigley, management should have contacted the Federal Reserve in January. The Fed should have initiated some sort of investigatory wind-down of the bank at that time, as it is a fundamental concept in banking.
Although, the primary issue that may arise from this situation is a lack of trust. SVB is regulated by numerous state and federal agencies, has a clean audit assessment and rated by a licensed rating body as an investment-grade bank.
Hence, the bank appeared to be reputable until news broke out of its financial struggles and eventual collapse.