Silvergate, the new trouble-fête?

Silvergate, the new trouble-fête?

The Fipto Research Team
March 8, 2023

The firmness of American regulation only increases the fracture between their dinosaur world and the future of finance. Silvergate Bank, a key player in the crypto banking sector, has revealed that it could soon be "less than well capitalized," leading to the dropping of the bank by several large crypto enterprises. Silvergate had 94 crypto exchange clients and 894 institutional investors at the end of 2022. This news is significant because Silvergate was instrumental in solving the "fiat problem" in the crypto markets, providing banking services to many crypto enterprises. Crypto-friendly finance is becoming increasingly vulnerable due to the stringent regulations imposed by the regulators, which are making their operations extremely difficult. Silvergate is seemingly facing a bank run due to a mix of regulatory and market pressure. Silvergate delayed its 10-K SEC annual report filing and the subsequent drop in its stock price has caused concerns among investors and downgraded its stock rating. The majority of the bank's clients left. Could US players turn to European players? Like the barrel of oil, Bitcoin is mostly traded against USD or dollar stablecoins. Could US regulation lead to “de-dollarization” of crypto ? Despite a positive week on the stock market, the crypto market remained in the red paralyzed by Silvergate. However, the crypto will not break away from Powell and NFPs this week.

Enough is Enough

Is the Silvergate case not a coincidence ? Kraken, a popular crypto exchange in the U.S., plans to launch its own bank, according to its Chief Legal Officer, Marco Santori. However, this announcement comes amid a challenging regulatory environment for the crypto sector, including increased scrutiny from the Securities and Exchange Commission. The SEC is investigating whether Kraken offered unregistered securities to American clients. Kraken recently settled a case with the Office of Foreign Assets Control over sanctions violations and paid a fine. The ongoing regulatory probe is not good for the crypto industry, and Kraken's decision to launch its own bank could be seen as a response to the regulatory uncertainty.

Satoshi's dream go away

Nigerians have been protesting against their government's implementation of a central bank digital currency and are demanding that paper money be restored instead, despite government incentives. The cash shortage in the country came about due to cash restrictions aimed at pushing the country into a 100% cashless economy. Let's remember that the country currently has more than 50% of crypto adoption rate. The Nigerian experience suggests that CBDCs present a substantial risk to financial freedom while providing no unique benefit. Indeed, the total traceability of the currency by a government gives it all power over its citizens. CBDCs do not bring more stability in a country where the currency is facing high inflation. It therefore has no more capacity to retain value. The Nigerian government has tried to spur adoption through various measures, but none has proven effective, and Nigerians still prefer cash. This cautionary tale should be a lesson for other developing countries considering the implementation of CBDCs. Despite the various advantages that CBDCs can bring to a country's economy, such as monitoring the circulation of money by sector of activity, it should not be forgotten that they are freedom killers at this point of development. Einstein created the nuclear bomb, Satoshi created the CBDCs.

It is not finished

SEC Chair reasserts every crypto is a Security aside from Bitcoin. There are concerns that Ethereum may be classified as an unregistered security, which could lead to decreased demand for the cryptocurrency and impact the entire ecosystem. If Ethereum is ruled as a security, it would be subject to additional regulatory requirements, limiting its use cases and hindering its growth potential. The SEC's ruling on Ethereum's classification is important for the regulation and use of blockchain technology and could have far-reaching implications for the cryptocurrency market. However, taking down Ethereum would not necessarily lead to the downfall of the entire market because of the decentralization that characterizes the cryptocurrency market. It is important for regulators to create a framework that fosters innovation while also protecting investors as the cryptocurrency market continues to grow and evolve. Could a State save other cryptos by recognizing it as legal tender like Bitcoin? Regulation must support innovation, at the risk of seeing innovation take off without it.

Sources : Beincrypto , Coindesk, Bankless

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March 8, 2023

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