Crypto firms see no long term impact of fall of US banks, investors unsure

The collapse of Silvergate Bank, Silicon Valley Bank (SVB) and Signature Bank in the US might create temporary liquidity issues but will not have any significant impact on the Indian crypto market in the long run, officials from several exchanges told Business Standard.

All three banks are considered crypto-friendly. SVB offered services such as cryptocurrency custody and lending. Silvergate Bank was well-known for offering banking services to the crypto industry. It created a dedicated platform to enable exchanges and other businesses to retain deposits in multiple cryptocurrencies that could be used to facilitate trades and other activities.

Signature Bank's blockchain-based payments platform, Signet, allowed users to move funds swiftly and without incurring costs.

"This should not have any direct impact on the India-specific crypto market," said Edul Patel, chief executive officer (CEO) and co-founder of crypto firm Mudrex.

"Regarding the Indian crypto market, there may not be a direct risk to Indian cryptocurrency exchanges," said Punit Agarwal, founder of the crypto platform KoinX.

After the SVB was shut down by US regulators on Friday, the crypto market plunged deep into the red. Bitcoin fell below $20,000, and the total crypto market cap touched $914 billion. Over the weekend, crypto firm Circle announced that it had $3.3 billion worth of reserves at SVB. These reserves were maintained for its stablecoin, USD Coin (USDC). USDC plunged to $0.88. It generally trades at par with the US dollar.

However, the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and the US treasury acted swiftly over the weekend to allay the investors' fears. They issued a statement saying that all depositors will be able to access their funds in the SVB, and no taxpayer will lose their money.

The crypto market bounced back in response. On Monday, according to CoinMarketCap, Bitcoin was trading above $24,000, USDC was at $0.999, and the total crypto market cap was above $1 trillion at $1.07 trillion.

"SVB's transaction halt had caused a sharp 10 per cent de-peg of USDC over the weekend, which resulted in a massive sell-off across crypto markets. But post the Fed and US Treasury announcement of honouring the customer deposits of SVB, the peg was restored, with the overall crypto market bouncing back and reaching a market capitalisation of just over $1 trillion," said Parth Chaturvedi, crypto ecosystem lead at crypto exchange CoinSwitch.

"The closure…is likely to result in short-term liquidity issues since these banks acted as the primary ramps for dollar into crypto assets," he added.

According to several firms, this also brings the topic of crypto regulation back on the table.

"The implication of the collapse also marks the need for regulation in the Crypto ecosystem, especially for stablecoins," said Rajagopal Menon, vice president at crypto exchange WazirX.

"In India, we might see a similar stance by financial institutions amidst regulatory developments taking place in the country," he added.

Investors unsure about the industry's future

The investors, however, said that events in the last few months had left them uncertain about the crypto industry.

"The crypto market is not like it used to be. Bitcoin has been under $25,000 for over eight months now. The imposition of the tax, the fall of FTX and the following market crash had already left me uncertain about investing in crypto assets," said Himanshu (name changed). Himanshu has been investing in cryptocurrencies for the last six years.

"We have made a lot of profit earlier. But now the market seems too risky," he added.

Another investor, Vibha Gupta, added that the collapse of Silvergate and SVB has only added to the confusion. Gupta works at a multi-national company in Gurgaon.

"It is worrying to see the uncertainty in the crypto industry now," she told Business Standard. "My portfolio has been in the red for a while now and just when we think the situation might improve, it gets worse. I have stopped putting in more money in crypto. It is better to wait until the fog clears."