Crypto Winter Causes Crypto-Friendly Bank Deposits to Drop

crypto winter, digital assets, deposits decline

This year’s crypto winter has begun to impact banks that deal with digital assets.

That’s according to a recent report by S&P Global, which said these banks have seen a rise in outflows of crypto-related deposits.

“The fluctuation is expected to continue, given the volatility in the asset class stemming from the FTX Trading Ltd. fallout,” the report said.

For example, Silvergate Capital saw its crypto deposits fluctuate by more than $5 billion in a given quarter twice during 2022, due to bitcoin hitting a peak and the collapse of stablecoins Luna and TerraUSD.

The report said that Metropolitan Bank Holding Corp. saw its cryptocurrency-related deposits fall almost 40% sequentially during the third quarter.

Meanwhile, Signature Bank and Silvergate — which S&P describes as two of the largest cryptocurrency banks by deposit size — reported respective quarter-over-quarter declines of 8.9% and 10.8%.

Earlier this month, Signature Bank seemed to be distancing itself from the crypto industry after previously courting the sector, reducing customer deposits to under 15%.

“We’re not just a crypto bank, and we want that to come across loud and clear,” Signature Bank Chief Operating Officer Eric Howell told an industry conference.

To make its point, the bank is “going to exit about $8 billion to $10 billion worth of deposits in that space, which we can easily cover through cash and borrowings,” Howell added.

This month also saw Silvergate Capital CEO Alan Lane write to the Securities and Exchange Commission (SEC) to say his company carried out extensive due diligence on FTX, its affiliated trading platform Alameda Research and other FTX-related firms.

As PYMNTS wrote in our crypto-winter post-mortem last week, it’s worth remembering that the failures of the crypto sector were not caused by issues related to the blockchain technology that supports the industry.

“In fact, many industry observers, and especially the purists, would tell you the failures were directly at odds with the promise and premise of blockchain technology,” we wrote.

In addition, technical development within native Web3 architecture has progressed rapidly, with Ethereum shifting from proof-of-work to proof-of-stake blockchain model, an exponentially more sustainable method on an energy-usage basis. The improvement, a monumental technological feat no matter how one feels about the industry, can be considered a singularly positive event.

“Today, the future of crypto as an asset class remains more unclear than ever as the focus has shifted to spiral cycle of new contagion impacts, bankruptcy and clawback proceedings, regulatory probes and potential after-the-fact legislative fixes,” we wrote.

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