Regulatory pressure has led to the crisis of one of the most important banks for the crypto sector. Silvergate is a system bank for the global cryptocurrency infrastructure; it converts payments into fiat and crypto, serving major cryptocurrency companies and exchanges. Let’s look at what happened and what the potential dangers are.
Silvergate Bank announced the termination of its Silvergate Exchange Network (SEN) cryptocurrency transfer network. The SEN network, one of the bank’s most popular offerings, provided round-the-clock payments between investors and cryptocurrency exchanges.
“Effective immediately, Silvergate Bank has made a risk-based decision to discontinue the Silvergate Exchange Network (SEN). All other deposit-related services remain operational,” Silvergate said in a statement.
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After Silvergate reported uncertainty about the viability of its business, many cryptocurrency exchanges and companies, such as Coinbase, Paxos, Circle, and Gemini, began officially refusing to work with the bank.
Reports of problems with the bank followed this chronology:
The first news of potential problems with Silvergate, the crypto industry’s most important bank, came last week, stopping the Bitcoin price rally, which had reached $24k by then. The negative news surrounding this important infrastructure bank has already caused the price to drop to $22k, causing FUD in the market over the implications of another potential fall of a major crypto-related company. Silvergate itself has lost about 60% of its stock price amid problems with its regulatory investigation.
Nevertheless, some market participants are expressing optimism about the possibility of Silvergate being replaced by new players. Amid all the problems with current payments, two major companies have already expressed their intentions to do so in the near future:
Oliver said that, unlike SEN, BLINC’s payment platform is not subject to the restrictions of a single credit institution. This is ensured by BLINC’s decentralized design, which offers access to multi-currency transactions from multiple banks in Europe, Switzerland, and the UK.
According to a fresh message on Twitter, a specific date for the opening of the bank has not yet been determined, but every customer of the exchange can already sign up for notifications about the launch of the banking service.
This situation creates great difficulties (especially for large U.S. investors) to exit crypto for the U.S. dollar. Also, the situation has affected some exchanges, whose customers have lost the ability to work with the U.S. dollar; now they cannot withdraw their money to the lir bank accounts. The bank, which was engaged in conversion, stopped its work because of the regulator’s pressure.
The situation creates a lot of uncertainty and nervousness in the crypto market, which has already had a negative effect on the price of Bitcoin. We can only hope that this will not lead to another major crisis.
It will take some time for the industry to readjust and somehow adapt to this stressful situation. One possible solution is the use of alternative players, who will soon enter this market: BCB and Kraken Financial.
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