With US$400 million in assets under management, a crypto fund manager is looking to Swiss banks to fill the vacuum left by the collapse of a crucial payments network run by struggling US lender Silvergate Capital.
Silvergate's 24/7/365 real-time network was utilised by Digital Asset Management to transfer money to and from Coinbase Global Inc.
But, major exchanges like Coinbase, Crypto.com, and Gemini no longer support Silvergate.
On Friday, Silvergate Capital Corp announced that it had made the "risk-based decision" to shut down the Silvergate Exchange Network, its cryptocurrency payments system.
"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 posted on its website.
Companies sever ties
Following that, prominent cryptocurrency companies such as Coinbase Global and Galaxy Digital severed ties with Silvergate as a banking partner.
Stablecoin issuers Paxos and Circle, the CBOE's digital asset exchange, and cryptocurrency exchanges Bitstamp and Gemini also suspended their partnerships with Silvergate.
This came just two days after the digital asset-focused bank expressed scepticism about the network's long-term survival.
Richard Galvin, the co-founder at Digital Asset Capital Management, said in an interview Friday, "There are some banks that handle crypto transactions, but they are not crypto-focused, unlike Silvergate."
Industry looks to Switzerland
"It might take some time to find a banking partner. We’re speaking to some Swiss banks," he added.
Galvin said that worries about Silvergate had "raised the difficulty level" of moving money to cryptocurrency exchanges. He didn't name any specific financial institutions.
But he said that the process could take longer than usual because the Silvergate network had previously made it easy to move money quickly between accounts, exchanges, and over-the-counter trading desks.
Many traditional banks are still cautious of the volatility in digital assets and the possible regulatory heat, which has long been a problem for the cryptocurrency business.
The fallout from the FTX exchange in November wiped out Silvergate's attempts to fill the hole.
The collapse of Silvergate's major client FTX led to a rush of customers withdrawing their money from the bank last year. The bank announced this week that it is evaluating its long-term viability.
Galvin said, "We were already taking steps proactively to reduce our deposits in Silvergate and find new bankers."
Many Swiss financial institutions deal with digital assets, including Sygnum Bank AG and SEBA Bank AG. Capital Union Bank in the Bahamas and Deltec Bank & Trust Ltd. in the Bahamas are both well-known for their crypto-centric strategies.
Some smaller banks in the United States have jumped on the digital currency bandwagon in the hopes of quickly increasing their deposits and getting access to a source of free funding.
There was a rethinking after the FTX collapse.
For example, New York's Signature Bank said in December that it was leaving the cryptocurrency business as a whole, which could mean losing as much as US$10 billion in deposits from clients who use digital assets.
Sydney-based Galvin, signing off, said, "We believe in diversifying our risks and have a number of banking partners."
Related: Silvergate Bank: What the Market is Telling Us
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