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Signature Bank, a New York financial institution popular among real estate and crypto businesses, abruptly shut down its operations on March 12th, 2023. According to New York regulators, this move was essential to protect the stability of the financial market.
The Introduction of Signature Bank to the Crypto Market
At the onset of the crypto market globalization, investors had a hard time liquidating their assets. For investors to perform over-the-counter trading and hedge funds, they had to go through a stressful transfer process. This is because the traditional banking sector did not recognise digital assets or the crypto market as viable financial systems.
It could take several days for investors to transfer money from their bank account to exchange platforms and vice-versa via standard banking. This caused many investors to miss market capitalization opportunities.
Moving funds between exchanges on weekends was also impossible since banks were closed on weekends. This was quite frustrating for many investors since the crypto market traded 24/7. It was therefore a huge relief for crypto investors when a traditional bank decided to make provisions for the crypto market.
The Silvergate Exchange Network (SEN), was launched in 2017 as a major game changer in the financial market. The SEN technology enabled hedge funds and cryptocurrency businesses such as Coinbase Global Inc. to transfer funds effortlessly at any time of day.
In 2018, Signature Bank joined Silvergate and became one of the few Banks in the U.S. to accept cryptocurrency deposits. Signature’s Signet, was launched in January 2019 and it became SEN's major competitor. Signet is a proprietary blockchain-based digital payments network that permits real-time payments for institutional crypto clients of Signature Bank.
Signet was integrated with Fireblocks in 2020 to ease digital assets' safe transfer, storage, and issue. The platform encourages crypto traders to make real-time payments in dollars 24/7.
Asides from its Signet system, Signature expanded as a commercial bank, with offices in New York, Connecticut, California, Nevada, and North Carolina and nine national business lines for commercial real estate and digital asset banking. It became one of the most popular banks in the U.S. as a result of its acceptance of bitcoin deposits long before the lockdown.
Financial Records of Signature Bank Before Its Closure
According to regulatory documents, about $79 billion, which is nearly nine-tenths of Signature Bank's $88 billion deposits, were uninsured at the end of Q4 2022. The records also show that over 80% of Signature's deposits were from legal firms, accounting firms, healthcare corporations, manufacturers, and real estate management organizations as of the first week of March 2023.
Client deposits for digital assets at the bank totaled $16.52 billion. Coinbase Global Inc., the largest cryptocurrency exchange in the United States, had a $240 million bank balance in Signature at the time of its closure. Paxos Global, which previously collaborated with renowned crypto exchange platform Binance, also had a $250 million deposit balance in the bank.
As of September 2022, the cryptocurrency industry accounted for one-quarter of Signature's deposits. However, in December 2022, the bank declared it would reduce its crypto-related deposits by $8 billion. This is something many financial commentators have speculated to be the beginning of the bank's downfall.
What happened to Signature Bank?
Signature Bank stated in February that Joseph DePaolo, the bank's president and CEO since its creation in 2002, will retire in 2023 and be replaced by Eric Howell. Therefore, it was a shock to the general public, when New York bank regulators announced that they were replacing the bank's management team and seizing the operation of its 40 locations across the country.
Though it was not well known, Signature had begun to withdraw from digital assets following the collapse of FTX in November 2022. However, as of March 8th, 2023, the bank still had $16.5 billion in crypto-related client deposits.
A signature, according to Financial market commentators, is a victim of the panic surrounding Silicon Valley Bank, which regulators seized on Friday, March 10th, 2023. As word of Silicon Valley Bank's problems surfaced the week before its closure, business clients of Signature were concerned that their savings would be jeopardized. This concern is legitimate as many corporate clients reportedly had over $250,000 in their accounts.
How Signature Bank's Closure Affects the Crypto Market
The digital-asset market has had a rocky year, with high-profile bank closures. Now, three bank failures (Silicon Valley Bank, Silvergate Capital Corp., and Signature Bank) have added to the market's woes.
A major factor responsible for the recent failures in digital assets is the instability of stablecoins. The stablecoin sector was the source of the crypto market challenges in 2022, beginning with TerraUSD's collapse in May 2022. The announcement of the seizure of Signature bank has further affected the sector.
The second weekend of March saw a collapse in trust in the stablecoin sector as USDC, a top liquid US dollar and pegged stablecoin, declined to 87 cents. This triggered Coinbase and Binance to temporarily suspend USDC/USD conversions. (Top Crypto Forex Brokers of 2023)
Stablecoins are a subset of the crypto ecosystem on which investors can often rely to keep a fixed price. They are designed to be tied to the value of a real-world asset, such as the US dollar or gold. However, Signature coupled with other bank closures has exposed the vulnerability of stablecoins.
Thankfully, the U.S. government stepped in on March 12th, 2023 to guarantee all Signature depositors that their investments are safe. This has boosted investors' confidence and sparked a small rally in the crypto market. Within 24 hours of the government's address, bitcoin and ether were roughly 10% higher.
According to Nic Carter of Castle Island Ventures, "the government's willingness to backstop both banks indicates that it is back to providing liquidity." Loose monetary policy has historically proven to be a boon for cryptocurrencies and other speculative asset classes. The U.S. appears to be treading these paths. (Trade Cryptocurrencies with these regulated brokers)
How Signature Bank's Closure Affects the Forex Market
While the crypto market may have been invariably affected by recent bank closures, the Forex market appears to have stood the test of time. The stability of the forex market is hinged on its oversight. The forex market is monitored globally by regulators and institutions that ensure the security and legitimacy of tradable assets.
The forex market, being vastly regulated, is subject to proprietary authorities and regulations which guide the conduct of financial market players and control the general outcome of the forex market. In this vein, traders are not only insured, but they can also enjoy stable market predictions. You can follow live updates of the forex market from the comfort of your home at any time of the day, knowing your assets are secure.
It is also important to note that recent market closures, including Signature Bank, are peculiar to the U.S. and are a ripple effect of the country's regulatory rates and banking provisions. The forex market is a global institution with access to multiple international banking systems and structures, hence it is barely affected by bank closures in the U.S.
As long as the value of the dollar as a major exchange rate is secured, the forex market has nothing to lose. At the time of publishing this piece, it's safe to conclude that forex market investors have nothing to fear, as the exchange rate of the dollar has been vastly stable in recent weeks.
About Signature Bank
Signature Bank was founded in 1999 in Israel. In 2004, the bank became public. Over the previous decade, Since the company became public, it has extended its services to international borders, particularly on the West Coast.
Signature Bank is popular for its expertise in funding the acquisition of taxi medallions, which allow holders to operate taxis. It is also well-known in New York for offering banking services to legal and real estate firms. The bank is also highly rated for its caliber of clients. Its clientele includes several people affiliated with the Trump Organization and family members of U.S. former President Donald J. Trump.
Final Thoughts
In the long run, the demise of the crypto banking trifecta may cause issues for bitcoin, the world's largest cryptocurrency. This will also have a ripple effect on the entire crypto market.
Signature's Signet is an essential real-time payment tool that has fully taken over the crypto market. The loss of Signature's Signet will reduce crypto liquidity, particularly on weekends.
The Crypto industry has been de-banked, particularly for 24/7 quick payment rails. As a result, the solution for crypto in the future is to look to other jurisdictions.
Make sure to follow our live updates to get the crypto trading information necessary to stay abreast of market happenings and protect your investment.
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