We all heard about it: three crypto-friendly banks – Silvergate Bank, Silicon Valley Bank (SVB), and Signature Bank – recently collapsed for similar yet different reasons. While Silvergate’s overexposure to the recently volatile crypto market proved fatal in early March, SVB tried to seek relief from its liquidity issues by borrowing money from the Federal Reserve System (FED) but missed the deadline to submit its request by a few minutes. It was shut down on 10 March 2023. A couple of days later, Signature Bank was fatally wounded by a liquidity crisis triggered by a bank run, and it “...could not provide accurate data regarding the amount of the deficit.” Like the other two banks, it collapsed soon after. 

 

How did the crypto industry react?

 

Most crypto projects and firms promptly switched to other banking options to ensure smooth operations and asset safety for their clients. Already in early March, Amber took action to move away from Silvergate as a banking provider. Other banking providers and financial institutions continued to service crypto projects without any disruption despite the fallout from Silvergate. 

 

Although a ‘wait-and-see’ approach seems to be largely favored by industry leaders, especially when it comes to longer-term decisions that may be affected by regulators’ stance vis-à-vis the banking crisis, the market experienced a spike in Bitcoin prices. The price movement can also be attributed to the increasing mistrust in the traditional banking system. Going forward, we believe more and more traditional financial institutions will gain exposure to the crypto market in order to foster trust and synergy between the two sectors. 

 

Authorities from Hong Kong and Singapore will continue to lead the effort in this regard, thus proving their well-deserved designation as crypto hubs. In February 2023, Hong Kong partnered with some international banks to launch its initiatives on digital green bonds. In April 2023, Singapore state authorities and police announced a new collaboration with local banks to flesh out uniform standards for screening potential clients from the crypto and digital assets sectors. This represents a significant milestone for the adoption of crypto in Singapore, as it would help reduce the overall skepticism, mistrust, and other difficulties faced by local customers wanting to invest in digital assets. In Europe, Switzerland also proved its willingness to enhance the connectivity between the two sectors. According to recent reports, Swiss state-owned bank Postfinance, one of Switzerland’s largest retail banks, announced it would start providing crypto services to its customers thanks to a partnership with Switzerland’s Sygnum Bank. 

 

So, what’s next for digital asset businesses and investors?

 

Industry stakeholders, investors, as well as regulators may need to rethink the risks of centralized financial systems represented by the banks, especially in light of further rate hike expectations that may continue to destabilize institutions. Banks generically operate by the ‘borrow short to lend long’ principle, which makes them vulnerable to bank-run and insolvency risks, especially during times of inflation, market volatility, and a lack of trust in financial entities.  

 

The development of the intersection between crypto and traditional finance is more important now than ever. And for good reasons: the traditional financial sector facilitates greater access to investors and depositors and professionally-managed investment products in the digital asset markets can provide portfolio diversification and long-term returns. While the existing financial infrastructure enjoys a higher degree of stability, it is worth noting that such stability came at the expense of limited dynamism and stifled innovation. The emerging crypto sector represents a breath of fresh air as it allows for unprecedented innovation and creative collaborations, boosting synergies between the old and new while shaping a more robust client-centric environment.

 

How will it affect investors over time?

 

We would like to highlight some trends that investors should pay attention to:

 

- Increasing scrutiny and monitoring of crypto activities from global regulators. This could bring forth higher standards and requirements in order to operate in the crypto space.

- In line with global crypto regulatory trends, banks will be limited to only collaborating with licensed digital asset service providers.

- Stringent compliance requirements may lead to higher operating costs for businesses and fees for clients

 

In light of the recent banking collapse, traders will need to have better planning for exit strategies given they will no longer be able to close out bets outside of regular banking hours. During this re-adjustment phase, we are likely to experience additional levels of volatility.

 

At the same time, hurdles for crypto companies to open banking accounts at traditional financial institutions are becoming higher while onboarding time is getting longer. Increasing regulations and scrutiny from authorities will force banking providers to abide by more stringent onboarding requirements, thus increasing management and operation fees for everyone – banks, service providers, and clients.

 

In the long term, we believe this may result in a more stable environment that will allow a wider range of investors and clients to thrive financially – from beginners that may need more hand-holding in their first steps into the crypto space to sophisticated investors to make the most of the opportunities offered by a more predictable market. 

 

Professional investors will be able to generate more stable, long-term profits for clients in a more compliant and regulated environment. 

 

How to adjust and seize new opportunities offered by an unprecedented situation?

 

As the crypto market continues to mature, investors will have more tools to deploy their capital in order to take advantage of any market dislocation. This includes structured products, professionally managed investment strategies, and staking services. 

 

How is Amber readjusting to mitigate future risks?

 

Since 2017, Amber has endured several market cycles with outstanding results. It's a strong demonstration of our business resilience and we continue to provide critical services to our clients during times of crisis, a strategy that has proven crucial following the collapse of FTX. 

 

Our business abides by the highest standards of compliance and security in order to protect our clients from risks associated with market dynamics and regulatory changes.

 

We are committed to providing high-quality products and customer experience. Amber Group currently owns several licensed/registered subsidiaries such as Sparrow Tech in Singapore and Amber Vault Aus Pty Ltd in Australia to provide digital assets services. 

 

For more information, please contact your RM.  

 

 

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NOT FINANCIAL ADVICE – The material is for informational and educational purposes only. Any information provided is not intended to be and does not constitute financial advice, investment advice or trading advice. The information provided is not intended to provide a sufficient basis on which to make an investment decision.

RISK STATEMENT– The trading of Bitcoins, alternative cryptocurrencies has potential rewards, and it also carries potential risks. Trading may not be suitable for all people. Anyone wishing to invest should seek his or her own independent financial or professional advice.