First Citizens Bank has acquired most of Silicon Valley Bank, but it made sure that its purchase agreement excluded cryptocurrencies and loans backed by crypto. This aversion to digital assets is not unique to First Citizens, as New York Community Bank refused to touch Signature's digital banking arm. Some believe that banks are responding to growing regulatory hostility towards cryptocurrencies, which has been intensified by the November 2022 implosion of FTX. The US government insists that it is only trying to ensure that banks are stable and cryptocurrencies do not enable money laundering and other crimes. However, the crypto community believes that there is a concerted effort to ban cryptocurrencies entirely, dubbed "operation chokepoint 2.0."
US regulators have warned banks to be careful of "fraud and scams" and "significant safety and soundness concerns" when working with crypto companies. Coinbase has been warned that it might be charged with securities violations, and the Commodity Futures Trading Commission sued Binance for allegedly allowing Americans to trade crypto derivatives illegally and facilitating illegal activities. This crackdown is driving crypto enthusiasts to platforms with no oversight and opaque bank and risk exposures, according to Jeremy Allaire, CEO of stablecoin issuer Circle, which had parked $3bn in reserves at SVB. Some banks are still serving digital asset companies in limited ways, but no one is openly bidding to replace Signature and Silvergate as the main crypto-focused banks. Lenders such as First Citizens are signaling which side they want to be on, and the time has come for the industry to make tough choices about digital assets.
US banks Silicon Valley Bank, Signature Bank and Silvergate Capital used to welcome deposits from crypto companies, but their collapse has left an industry that already has limited links with traditional banking systems with even fewer options. This comes at a time when the crypto industry is facing an acute crisis, with un-stable stablecoins collapsing under the strain. Last year, the market leader Tether’s USDT broke its peg to the dollar, just days after the collapse of smaller rival terraUSD, leading to a market crash. More recently, USDC admitted a $3.3bn exposure to SVB, causing its token price to collapse to 88 cents before it eventually recovered. US regulators moved to ensure deposits at SVB were safe and Circle, the parent company of USDC, promised financial support. Dante Disparte, Circle’s chief strategy officer, called it “crypto’s Cuban missile crisis”. Although some crypto evangelists have said the industry is being used as a scapegoat for lapses in banking oversight, many industry insiders believe that the fault lies with banks and the regulators’ failure to adequately monitor them. Crypto is as reliant on the US banking system as everyone else, and USDC is now considered “too big to fail”.