The collapse of Silicon Valley Bank (SVB) and Silvergate Capital, two of the most crypto-friendly banks in the industry, has created significant challenges for many crypto firms. Losing a banking partner makes it harder for companies to comply with regulations and offer their services in line with the expectations of the United States Securities and Exchange Commission (SEC).

Circle, the issuer of the second-most liquid U.S. dollar-pegged stablecoin, USD Coin, admitted to holding $3.3 billion at SVB following the banks’ collapse. This caused the stablecoin to temporarily lose its peg and fall below $0.87, leading to investors losing confidence in cryptocurrencies, including mature players like Circle.

The collapse of SVB and Silvergate has and will continue to challenge the crypto industry, creating uncertainty and instability. This situation is particularly evident with stablecoins like USDC, which rely on banking partnerships to ensure their value is pegged to the U.S. dollar. A collapse like this can cause instability in the value of a stablecoin in the short run and put pressure on other major crypto players like Bitcoin and Ether in the long run.

In addition, the collapse of SVB and Silvergate has made other banks hesitant to endorse new relationships with the crypto industry. This could make it more challenging for crypto companies to find stable banking partners in the future, leading to a domino effect that could ultimately lead to their downfall.

The uncertainty and uneasiness that followed the collapse of both SVB and Silvergate are likely to have a knock-on effect on investor confidence, adoption, and growth, which are crucial aspects in the further mass adoption of cryptocurrencies. Furthermore, without a stable banking partner, crypto companies may struggle to comply with regulations, which has already been a key hurdle for many crypto firms.

The SEC has also been out to get crypto firms for a long time, and SVB and Silvergate’s collapse means crypto firms will now be more vulnerable to increased scrutiny from regulators regarding their reliance on stablecoins and banking partnerships. This will also bring up wider implications for the traditional banking industry’s relationship with the crypto industry.

As the crypto industry continues to grow, traditional banks may be forced to reassess their relationships with crypto companies and the risks associated with those relationships. In the U.S., the government seems to be actively trying to cease any crypto operations by going against crypto companies and banks and trying everything in its power to shut them down, which has led to speculations within the wider crypto community.

While the crypto community has managed to regain most of its losses since the bank collapses, the aftermath lingers as a reminder of the challenges the industry faces in the coming weeks and months.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Copaly.