Coinbase CEO Brian Armstrong considers neobanking features after Silicon Valley Bank crisis.
Silicon Valley Bank (SVB) collapsed recently, leading to the depegging of stablecoins and raising concerns among small businesses, venture capitalists, and other depositors with funds stuck at the California tech bank.
US President Joe Biden tweeted his commitment to holding those responsible accountable. Federal regulators announced “decisive actions” to fully protect depositors at both SVB and the now-shuttered Signature Bank.
They also created a $25 billion Bank Term Funding Program to backstop banks. Regulators in the US and the UK began taking action to deal with the SVB collapse. Reports emerged of crypto industry exposure to the failed bank, with Circle having $3.3 billion in SVB.
SVB was shut down by California’s financial watchdog after announcing a significant sale of assets and stocks aimed at raising additional capital.
Implications in the Crypto Industry
In the wake of the recent bank closures affecting the cryptocurrency industry, Coinbase CEO Brian Armstrong has indicated that his exchange has been considering offering neobanking features. The closures of Silicon Valley Bank (SVB) and Signature Bank, which have traditionally served startups across a range of innovation sectors, have prompted calls for neobank services to be provided specifically for the cryptocurrency industry.
Although the reasons for the closures are not yet fully understood, the news has caused considerable concern throughout the industry. This is largely due to the fact that USD Coin (USDC) issuer Circle had more than $3.3 billion of its $40 billion reserves held at SVB, which has resulted in significant uncertainty around the company’s ability to manage redemptions.
Signature Bank, which also serves cryptocurrency firms, has met a similar fate with the New York Department of Financial Services taking possession of the bank in order to prevent further bank runs as customers scramble to pull funds from both SVB and Signature. This has had a significant impact on the industry, with the USDC stablecoin briefly losing its $1 peg.
Circle CEO Jeremy Allaire has since announced that the company has lined up new banking partners in the United States and USDC’s peg has now returned to the $1 mark. Nevertheless, the closures of SVB and Signature Bank have left many in the cryptocurrency community concerned about their ties to traditional financial institutions that serve fiat currency deposits, withdrawals, and monetary flows.
Nonetheless, despite the FUD, some companies have been managing it quite well. To illustrate, the likes of Binance are still considered the leading exchange and are functioning normally.
They FUD us, and banks fail. 🤷♂️ https://t.co/DyrIESJRjP
— CZ 🔶 Binance (@cz_binance) March 11, 2023
The likes of Coinbase, on the other hand, are exploring some new neobanking features that could help the exchange overcome the FUD and have a competitive advantage in the industry.
Coinbase Explores Neobanking Features
On March 13, Coinbase CEO Brian Armstrong took to Twitter to indicate that his exchange has previously considered adding features that could potentially bypass or bridge gaps exposed by recent mainstream banking failures. Responding to a query from Ryan Lackey, chief strategy officer of cryptocurrency insurance firm Evertas, Armstrong stated that Coinbase would need to add a number of features before offering neobanking services to high-net-worth individuals and businesses.
Armstrong noted that “non-fractional reserve ‘banking’ is definitely looking more attractive right now” and that Coinbase would need to add features such as outbound wires and multi-user support before it could offer neobanking services. The exchange confirmed that it had around $240 million held at Signature Bank on March 10 but expects to recover all of its cash holdings.
Definitely something we've thought about. Need a few more features like outbound wires, multi-user support etc.
Non-fractional reserve "banking" is definitely looking more attractive right now.
What are the key features you'd want?
— Brian Armstrong 🛡️ (@brian_armstrong) March 13, 2023
The closures of SVB and Signature Bank have raised concerns about the potential for widespread bank runs on regional banks across the United States. There are even reports that the United States Federal Reserve and Federal Deposit Insurance Corporation are considering the creation of a fund to cover deposits at ailing banks.
Given the recent turmoil, many in the cryptocurrency industry are now taking a closer look at the role of traditional finance institutions in serving fiat currency deposits, withdrawals, and monetary flows. Although the use of cryptocurrencies has been touted as a way to bypass the traditional financial system, recent events have shown that the industry is still heavily reliant on banks.
As the industry continues to mature, it is likely that we will see an increasing number of companies offering neobanking services specifically for the cryptocurrency industry.
In the meantime, the closure of SVB and Signature Bank has served as a wake-up call for many in the industry, highlighting the need for increased resilience and self-sufficiency.