Signature Bank Suffers $4.27 Billion Crypto Deposit Outflows

Signature Bank, a New York-based commercial bank, published Wednesday its trading update for the mid-Q3 quarter of this year. The bank reported that deposit withdrawals from the bank totalled $4.27 billion as cryptocurrency fear spreads.

In other words, the bank said a $4.27 billion fall in crypto outflows is to blame for a decline in its spot deposit balances.

However, the bank said it is “well-positioned to reach the target of combined loans and securities growth” for the third quarter despite pressure from the outflows of digital assets.

In contrast, Signature said non-crypto deposits increased to $2.64 billion quarter-to-date, with “specialist mortgage banking solutions” accounting for the majority of that sum ($2.29 billion).

The crypto winter has been brutal this year. So far, the share price of Signature bank has decreased 49% since the beginning of this year. This has been attributed to the ongoing harsh crypto winter.

Due to a surge in crypto industry deposits, Signature Bank had one of the best years among banks last year. But all that changed this year.

Uncertainty still pervades the crypto market because of the fallen token values and the impacts of CeFi bankruptcies.

Joe DePaolo, the CEO of Signature Bank, talked about the development and said that the bank has no direct exposure to cryptocurrencies because it only retains the cash deposits of its clients in dollars.

DePaolo said the bank’s growth does not depend on the growth of the digital currency ecosystem. The executive added that while the company’s exposure to the crypto ecosystem remains a headwind, the bank has grown loans at an annualized rate of 25.4% and deposits (ex-digital assets) by 26.3%.

Signature Bank offers financial services to institutional cryptocurrency traders and related firms, including exchanges and miners.

Of course, Silvergate Bank and Signature Bank are the only two U.S. institutions that are crypto-friendly, operating real-time payment networks.

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Opinion: What is driving the ‘crypto winter’?

As record breaking temperatures have scorched the Northern Hemisphere, winter has hung over the crypto industry, with 2.25 trillion lost across the entire market in the past few months alone. 

Yet a report released in June by technology consulting firm Capgemini found that approximately 71% of high-net-worth individuals (HNWIs) have invested in digital assets – a figure that rises to 91% for those under 40. Cryptocurrencies were reported as the favourite digital asset investment, followed by exchange-traded funds (ETFs) and metaverse investments.

It’s true that this time it’s different, and the growing interest of institutions will doubtless lift us out of the downturn eventually. But if this latest research paints such a rosy picture, what are the underlying reasons we find ourselves in this crypto winter?


1. Hawkish Fed Policy

In the context of the US’ suUS’-soft monetary policy of recent years, the debt burden of the markets has grown significantly, while borrowing has been carried out at historically minimal rates. As a result, the Federal Reserve hiked its benchmark rates by 75 basis points (bps) on June 15 to curb inflation that reached 8.4% in May.

This has inevitably seen a concurrent rise in the rate on deposits and loans, as well, causing people to shift money out of high-risk assets – including stocks and cryptocurrencies – into protective deposits, as the latter begin to provide more attractive returns.

A rate increase also affects the yield of US bonds. As the deposit rate rises, in order to attract investors to buy US government debt, the government must offer a similarly higher rate. As risk-free returns rise, so does the required return on investment in risky assets, so investors overprice them down. While this applies to all stocks, the companies that are most at risk that are not yet earning EBITDA or FCF – typically high-growth techs and biotechs, where the bet is on the company’s company’s potential.

2. Correlation between crypto and stock market

Cryptocurrencies have gone through various stages in their life span. They were initially “fads” that “eeks”and fanatics invested in. Some were “digital gol”” investors “led to in order to hedge their risks in a falling stock market. 

With the increase in mass adoption, cryptocurrencies began to take the position of a specific, risky, but in many ways common stock market asset – in part facilitated by the rapid growth in institutional adoption over the recent years. 

The entry of such large investors has seen capital soar and patterns and strategies for trading and investing appear. This has meant that, since 2020, cryptocurrencies – especially Bitcoin – have become financial instruments similar to other exchange traded assets, just with increased risk. This has led to a high correlation with the stock market which, in the current crisis, has been to the detriment of the crypto market.

3. Regulatory challenges

2022 has been a rollercoaster ride for cryptos. The global crypto market has been under the scrutiny of many different governments, with varying degrees of regulation popping up all over. Plenty are still in the process of studying cryptocurrency and trying to create suitable regulatory frameworks for the ever-evolving space. Central banks are actively developing CBDC concepts that may affect the distribution of stablecoins, regulators are reviewing the conditions for obtaining licenses, and all new jurisdictions are on the FATF grey list. 

All these regulatory changes clearly impact crypto companies and investors, creating the effect of a suspended state in which it is extremely difficult to create clear entry and action strategies in the market. In fact, until there are regulations governing the reporting and trading of cryptocurrency assets, it’s unlikely that ait’sf these price drops will be the last.  

For a large financial firm, this type of uncertainty is untenable. Due to their massive balance sheets, they may avoid speculating in assets that could lose them massive amounts of capital due to underlying fiscal problems. The monetary pullback and reduction of balance sheets will have an effect on all assets. However, with broader institutional adoption still in its early stages, the next wave of financial capital could be enormous. The key to unlocking it is in the hands of the regulators.

Waiting out the winter 

Confidence does seem to be re-emerging in the market, but these three factors represent sizeable ‘cold fronts’ on the gl’bal crypto ‘arket.

Still, despite the volatility and fears surrounding the “crypto winter”, investor”interest in t”e region has not stagnated – suggesting that the momentum for mainstream digital asset adoption is likely to continue. We are, of course, seeing some institutional investors actively take profits in an attempt to keep at least some part of their assets. But many other investors are laying low, so as not to lose more on the fall of the market. 

No one knows how long this crypto winter can last. What we do know is that winter always ends, and that the spring that follows can bring with it bountiful opportunities for growth. 

Anton Chashchin.jpg

Image source: Bitfrost


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Paradigm Shift amid Global Crypto Chain Reactions

Crypto industry leaders on Wednesday discussed the landscape change amid the market downturn over the past half year.


Chain reactions have been triggered after the crash of LUNA/Terra in May. Amid the so-called crypto winter, the subsequent market meltdown resulted in shutdowns among crypto institutions, such as the declaration of insolvency by crypto lenders Three Arrows Capital (3AC) and Celsius Network.

The industry has been widely discussing the consequences in the crypto space over the past 12-18 months.

Speaking at an online forum Wednesday, industry leaders in digital assets discussed the ongoing paradigm shifts of the ecosystem in terms of blockchain, digital assets, cryptocurrency and Web 3.0.

“I think the paradigm shift to takeaway is that, as amazing of the blockchain technology, as it’s kind of revolutionary as cryptocurrencies, I think the industry itself that has a long way to go in terms of being a stable and globally scalable platform,” said Jehan Chu, founder and managing partner of Kenetic, adding “there are lots of lessons to learn, and continue to learn these lessons.”

Chu said the institutionalization, maturation and evolution would be integrating and undergoing a hybrid combination of Web 2 and Web 3 in terms of business and tech sides.

In addition, the ecosystem would transform into a fully decentralized, fully open, decentral-mediate situation. Still, he added that this possible scenario would take time rather than fulfil in the short term.

Meanwhile, Alfian Sharifuddin, managing director of DBS(Hong Kong) Ltd., suggested a centralized platform deal with crypto trading would also be sustainable from the perspective of the banking sector as it is more “safe” than other institutions.

Sharifuddin said DBS received approval to roll out a crypto trading platform from the Singapore regulator, allowing them to occupy an advantageous position by boosting the confidence of investors to trade in a trust-worthy institution.

The head of Technology and Operation (Hong Kong and China) of DBS further elaborated that the underly technology of blockchain would be useful in pursuing the industry’s development in the banking sector for the long term.

As the concept of decentralized finance (Defi) can remove the limitation of an intermediate or settlement house to do the finality of settlement, which is a comprehensive process.

The cutting-edge technology will also free the time limit restriction that allows 24/7 transactions and enhance global transaction efficiency within seconds and universality.

During the webinar, participants also discussed how to deal with negative sentiment in the market, the balance between regulation and innovation, but also what kind of role a decentralized autonomous organization (DAO) should play.

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