• JPMorgan has reported that the termination of Silvergate Exchange Network (SEN) and the collapse of crypto bank Silvergate will cause a challenge for the crypto industry.
• Silvergate had provided services to more than 1000 institutional crypto market participants such as exchanges, miners, stablecoin issuers and fund managers.
• Replacing this instantaneous network for processing dollar deposits and withdrawals among crypto market participants will be difficult due to regulatory pressures, with some services migrating to other banks like Signature Bank.
Challenge for Crypto Industry
JPMorgan (JPM) said in a research report Thursday that the collapse of crypto bank Silvergate and the termination of the Silvergate Exchange Network (SEN) pose a challenge for the crypto industry. Silvergate had operated as a gateway for more than 1,000 “institutional crypto market participants including major crypto exchanges, miners, stablecoin issuers, market makers and digital asset fund managers that have been using its network to transfer fiat currency between their Silvergate accounts and the accounts of other Silvergate customers,” analysts led by Nikolaos Panigirtzoglou wrote.
Replacement Difficulty
Replacing this instantaneous network for processing dollar deposits and withdrawals among crypto market participants will be challenging given the current backdrop and the “general unwillingness of traditional banks to engage with crypto companies following the FTX collapse and given high regulatory pressures,” JPMorgan said. The entry of new depository institutions seems unlikely at present due to heightened regulatory scrutiny of cryptocurrency operations.
Services Migration
Some of the services provided by Silvergate will migrate to other banks such as Signature Bank, Provident Bancorp, Metropolitan Commercial Bank and Customers Bancorp, according to JPMorgan’s analysis. Some customers who left Silvergate have already announced they are migrating to Signature Bank; however its capacity to replace Silvergate would likely be limited due to market and regulatory pressure to reduce risks associated with cryptocurrencies.
FTX Collapse
JPMorgan also noted that general unwillingness from traditional banks towards engaging with crypto companies follows after FTX’s collapse which might have lead them into being cautious about taking up any risks associated with cryptocurrencies in order not face any losses or legal implications later on down line.
Heightened Regulatory Scrutiny
The heightened regulatory scrutiny on cryptocurrency operations is making it difficult for new depository institutions from entering in this space causing further difficulty when replacing an already existing platform like SEN which was providing services all across different sectors in relation with cryptocurrency operations.