Regulators shut down crypto-friendly Signature Bank

Two days after the collapse of Silicon Valley Bank and four days after the collapse of Silvergate Bank, the New York Department of Financial Services announced they had taken possession of Signature Bank, a New York-based bank that was a major bank partner for cryptocurrency companies. The bank was placed into receivership with the Federal Deposit Insurance Corporation (FDIC). According to a Signature board member, a bank run of billions of dollars began on Friday after the seizure of Silicon Valley Bank.

A joint statement from federal regulators announced that "All depositors of this institution will be made whole... no losses will be borne by the taxpayer. Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed."

The shutdown of Signature and the collapse of Silvergate leave many companies in the crypto industry without much access to the US banking system.

Bankrupt BlockFi has at least $227 million at collapsed Silicon Valley Bank

BlockFi, which has been in bankruptcy since shortly after the November FTX collapse, appears to have exposure to the collapsed Silicon Valley Bank. According to a court filing, approximately $227 million in BlockFi funds has been kept in one of several accounts the company maintained at Silicon Valley Bank. The account is a money market mutual fund, meaning it is not FDIC insured.

The US Trustee reportedly warned BlockFi counsel on March 6 that the company needed to "immediately take steps to safeguard these funds in compliance with" the depository agreement, because a MMMF was not in compliance. BlockFi responded that the account was FDIC insured (up to the FDIC's $250,000 limit), but the Trustee maintains that that is not accurate.

Silicon Valley Bank collapse causes crypto contagion concerns

Although it doesn't seem that it was exposure to the crypto industry that did in Silicon Valley Bank (unlike with fellow failed bank Silvergate), the crypto industry has been showing signs of concern that SVB's collapse may impact crypto businesses. In particular, there are fears around the fact that Circle, the company that backs the major USDC stablecoin, kept some of its cash reserves with SVB. Circle disclosed that around $3.3 billion, or around one-third of USDC's $9.88 billion in cash reserves backing USDC, was kept with Silicon Valley Bank.

SVB was also the preferred bank for various giants in the crypto VC world, including Andreessen Horowitz and Sequoia Capital. Pantera Capital also used SVB as a custodian.

Blockchain.com shutters asset management arm

After launching an asset management business less than a year ago, Blockchain.com has announced they will be shuttering it. They blamed the ongoing "crypto winter" as contributing to the decision. The UK-based firm had planned to offer "algorithm-based risk-managed exposure" to Bitcoin, which may have proven challenging in a year of declining Bitcoin prices.

Silvergate bank collapses

California-based Silvergate bank had pivoted almost entirely to serving crypto clients, a move that proved fatal to them in the wake of the FTX collapse and ensuing contagion. On March 8, they announced that they would be shutting down. Although their shutdown is considered to be a "voluntary liquidation", they had little other choice after a bank run, increasing regulatory pressure on banks serving the crypto industry, and a general dearth of new clients in the crypto downturn.

Silvergate's collapse may worsen crypto's already tenuous relationship with US banks. Silvergate was one of the few "crypto-friendly" banks, and the clients it previously served — among them, Crypto.com, Bitstamp, and Paxos — may face challenges finding a reliable replacement.

Silvergate crypto-focused bank faces crisis

Silvergate is a US bank that shifted its business toward primarily serving crypto clients. Following the collapse of FTX, there have been concerns over Silvergate's exposure to the losses experienced within the crypto industry. Short sellers piled in, making Silvergate the most shorted stock in late February.

On March 1, Silvergate revealed that they would miss the deadline to file their annual report with the SEC, which they blamed on regulatory inquiries. They also revealed even more losses, which added to the massive $887 million in losses they experienced in Q4 2022. They also disclosed that they were having to evaluate whether the bank was going to be able to survive.

Silvergate's stock plunged on the news, worsening its already marked decline in price over 2022–23. Some crypto firms began distancing themselves from the bank, as well: Coinbase announced on March 2 that they would no longer be transacting with Silvergate "in light of recent developments and out of an abundance of caution". Galaxy Digital, Paxos, CBOE, Gemini, Crypto.com, and Bitstamp also announced they would cease transfers to and from Silvergate, and Circle announced they would be "unwinding certain services with them".

Galois Capital shuts down after losing half their money in FTX

One of the largest crypto-focused algorithmic trading funds, Galois Capital, announced that they would be closing up shop in the wake of the FTX collapse. The fund had half its funds on FTX — around $40 million — and could not keep operating as a result.

Galois also sold its claim on FTX to a distressed buyer for around $0.16 on the dollar.

Peer-to-peer Bitcoin exchange LocalBitcoins to shut down after ten years

LocalBitcoins, a Finnish platform that allows individuals to trade Bitcoins with one another peer-to-peer, will be shutting down. The exchange is one of the longest running cryptocurrency exchanges, and for a while functioned as a way for people to trade cash for Bitcoin (and vice versa) more privately. However, in 2019, the exchange introduced KYC requirements.

LocalBitcoins cited "the ongoing very cold crypto-winter" as the rationale for the closure, and stated that new sign-ups would be suspended immediately. Trading will be suspended a week later, and users will have a year to withdraw Bitcoins they stored on LocalBitcoins' wallet product.

Coin Cloud crypto ATM operator files for bankruptcy

A blue crypto ATM, with the CoinCloud logo printed on the side in whiteCoinCloud crypto ATM (attribution)
The US-based company Coin Cloud, which operates crypto ATMs in the US and Brazil, filed for bankruptcy on February 7. They are the second largest crypto ATM operator in the world, and also in the US.

The company disclosed liabilities between $100 million and $500 million, and assets between $50 million and $100 million. In a filing, they reported they had 5,001–10,000 creditors.

By far the largest creditor is Genesis, a crypto lending firm that is also undergoing bankruptcy proceedings. Coin Cloud has a $116 million loan from Genesis, around $108 million of which is unsecured. Coin Cloud also owes a $7.6 million secured debt to crypto lending firm Enigma.

According to Coin Cloud, contributing to their bankruptcy was a $35 million deal with a vendor who they allege sold them faulty ATMs in February 2021, and with whom they are in litigation. Furthermore, in September 2021, the firm providing Coin Cloud's ATM software tried to terminate their software agreement, and pushed a software update that rendered the machines inoperable, causing days- or weeks-long outages. Coin Cloud decided to deploy unfinished ATM software that they had been using internally, and which was quickly hacked for around $6.5 million. Finally, Coin Cloud claims a chief marketing officer they hired lied about his credentials, and then spent $20 million more than he was budgeted.

Genesis files for bankruptcy

The Genesis cryptocurrency lending platform filed for bankruptcy, following weeks of turmoil after the FTX collapse. Genesis halted withdrawals shortly after FTX's failure, and shortly afterwards warned of possible bankruptcy if they couldn't raise at least $1 billion in new capital. The past few months have also featured a public conflict between Genesis, along with its parent company DCG and DCG's CEO and founder Barry Silbert, and the Winklevoss twins behind the Gemini crypto exchange.

It remains to be seen what the impact of a Genesis bankruptcy may have on its parent company, Digital Currency Group (DCG). DCG owes Genesis more than $1.65 billion, according to bankruptcy filings, including a $1.1 billion promissory note created to absorb Genesis losses in the Three Arrows Capital collapse.

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