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Crypto is not Responsible for Traditional Banking Failures

Everyone in the financial sector is currently talking about one of the biggest traditional banking collapses in the USA since the 2008 financial crisis. These three banks are Silvergate, Silicon Valley Bank, and Signature, respectively. 

The collapse of the simultaneous banking enterprise demise has become somewhat of a mystery that has pitied TradeFi against the DeFi sector. Some proponents of traditional financial markets argue that these banking collapses have absorbed the pressure from the crypto bear market.

However, cryptocurrency investors and stakeholders have opposed these ideas. Many media outlets have resorted to painting the collapse of these three banks by relating them as crypto-friendly entities. 

Meanwhile, those who are closely involved in the situation, such as Signature Bank Board member and former US representative Barney Frank, have explained it as an anti-crypto message sent by the US government. 

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However, the cryptocurrency market has picked up the pace stronger than before, proving their increased trust in the asset class as a solution to traditional banking failures.

Why does Silicon Valley Bank Collapse?

Silicon Valley Bank was the 16th largest bank and lender in the USA, with a total of $210 billion in deposits. It was providing support to more than 50% of the venture capital firms specializing in tech startups. A total of 2,500 venture capital firms were associated with it. 

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Traditional banking enthusiasts claim that the liquidity crisis of this bank started on account of the loss of interest in cryptocurrency exchange since the demise of FTX. Meanwhile, crypto market advocates blame the interest rate hike for causing this issue. 

The same is said about the other banking enterprises that are affected by illiquidity leading to insolvency. There are also some reports about Signature bank under investigation by SEC and DOJ before its closure. However, it is more likely that Signature bank was exonerated from these charges as it was sealed by the New York Department of Financial Services. 

Crypto market investors also argue that the crypto market winters and FTX fall were in the past, and it was offset by a new wave of bullish correction in the crypto markets. In contrast, the collapse of these banks is closer to the date of the congressional testimony of the Fed chair, where he assured more interest hikes.

Cryptocurrency entities that were associated with these banking enterprises have lost banking services and backup, which can hurt the interest of depositors. Some cryptocurrency projects, such as Circle, were in danger of losing the reserves that were present in these banks. 

However, the US government has warranted that all depositors will have full access to their funds.  Since the fallen banks are introduced as crypto-friendly enterprises, it has caused a rift in the confidence of traders, but the crypto market seems to be thriving. Regulators have found a reason to increase their scrutiny of the cryptocurrency market. 

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Agencies like SEC are bringing more unregistered securities lawsuits on various cryptocurrency exchanges and blockchain projects. This catastrophic event has also increased the volatility in the cryptocurrency markets temporarily.


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Hassan Mehmood (Saudi Arabia)

Hassan is currently working as a news reporter for Tokenhell. He is a professional content writer with 2 years of experience. He has a degree in journalism.

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