• Silvergate Capital, a Federal Reserve Member Bank, is one of the few U.S. banks working with the crypto sector due to its lack of regulation in regards to KYC/AML policy.
• In November, Silvergate was linked to FTX and Alameda after their collapse and since then, their stock price has plummeted as depositors flee.
• The risk of a bank run on Silvergate deposits remains an ongoing concern for the crypto industry.
Trouble Brewing In Crypto-Land
Regulatory Issues in Crypto Sector
The crypto sector has long been plagued by a lack of regulation when it comes to know-your-customer and anti-money laundering (KYC/AML) policy. This has led to very few entities in the regulated U.S banking system willing to work with crypto firms in order to access established USD on- and off-ramps, presenting a unique challenge for companies who are in the business of moving money or processing payments and transactions.
Silvergate Capital’s Role
Silvergate Capital is one such entity that plays an important role in servicing 1,677 digital asset customers with $9.8 billion in digital asset deposits. When FTX and Alameda collapsed back in November, it become apparent that Silvergate had been involved in providing them access to USD rails. Since then, their stock price has dropped nearly 56% as depositors have fled the bank leading to concerns over a potential bank run on Silvergate deposits posing a risk for the entire industry.
Distinction Between Bitcoin & Crypto
It is important to make the distinction between bitcoin and what is colloquially referred to as “crypto” but these lines remain blurred for many regulators and government agencies which makes it difficult for companies operating within this space.
Overall, developments around crypto on-and off-ramps have been heating up due mainly to Silvergate Capital’s involvement with FTX and Alameda and the accompanying drop in stock prices along with fears of potential bank runs on deposits are cause for concern throughout the industry . As such , it is becoming increasingly important that regulatory issues surrounding KYC/AML be addressed if this sector is going to continue developing at its current rate .