Signature Bank, a crypto-friendly bank, has been forced to shut its doors due to financial difficulties. The U.S. government has agreed to bail out the firm’s depositors as part of a “systemic risk exception” and no losses will be borne by taxpayers. According to the Financial Times, Signature Bank’s managers were surprised to see their bank placed into receivership.
Signature Bank was Coinbase’s bank of choice when Silvergate revealed operational difficulties, as with LedgerX. Kraken distanced itself from Signature earlier this month when it stopped processing transactions for non-corporate clients through the bank. Circle – the issuer of the second largest stablecoin, USDC – had exposure to Silvergate, Signature, and SVB as of January. The firm managed to rescue its Silvergate reserves before the bank entered voluntary liquidation on Thursday. However, it temporarily lost hold of $3.3 billion in cash within SVB on Friday, causing USDC to lose its peg. USDC has since returned above $0.99 after Circle CEO Jeremy Allaire confirmed that all of the token’s reserves had been recovered, and will be transferred to BNY Melon.
The closing of Signature Bank is yet another example of the volatile and unpredictable nature of the crypto market. Although the U.S. government has stepped in to protect depositors, the closure of the bank has caused a ripple effect throughout the crypto industry, with major companies like Coinbase, Kraken, and Circle all being affected in some way. Despite the setback, Circle was able to recover its reserves and USDC has returned above $0.99. This shows that, although the crypto market is unpredictable, it is still possible to recover from unexpected events.