Three banks with close ties to the crypto industry, Silvergate, Silicon Valley and Signature, have gone under within the last week. Forbes’ Director of Research for Digital Assets Steven Ehrlich joins ’Forbes Newsroom’ to discuss the implications of these collapses and what this means for the average crypto investor.
The recent bank collapses have raised concerns for crypto investors as stable coins are supposed to be a safer bet. While the average crypto investor should be careful, they do not necessarily need to be nervous. The crypto industry has proven to be resilient over the years, with developers working tirelessly to build new products and updates. However, investors should brace themselves for choppy waters as there is a possibility of more banks closing accounts or suspending services. This could lead to liquidity drying up, causing more slippages and liquidations, especially for offshore derivative exchanges.
There is hope that new crypto-specific banks such as Custodia and Kraken Bank might come online, but they haven’t launched yet. Some crypto banks have received charters from the OCC, including Anchorage Digital, Protego, and Paxos Trust, but the last two are provisional. For now, the biggest risk for investors is liquidity drying up, which could lead to more volatility. Ironically, at the time of taping, most crypto assets were up on the day, with Bitcoin up about $10,000, just shy of $25,000.
The fear was that the Fed would raise rates by 50 basis points at its meeting this month, but there is a growing possibility that rates will remain unchanged, which would be bullish for riskier assets like crypto. Goldman Sachs has even mentioned this possibility. Overall, while investors should be careful, there is still optimism in the crypto market, with new developments on the horizon and the potential for riskier assets to do well in the future.
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