As crypto firms in the U.S scramble for alternatives to Silvergate and Signature Bank, an opportunity to capitalize on the calamity presents itself for Europe.
Europe has struggled at times to keep up with the U.S in terms of crypto innovation. Whether that be via stablecoins, trading volumes or adoption, it has felt like the U.S has been the center of crypto since its inception.
However, the longer it takes U.S banks to declare they’re open for crypto business – i.e., receptive to taking in some of the millions of dollars once parked at Silvergate – the more likely it is that crypto firms could choose somewhere like Europe with more regulatory clarity and easier fiat payment rails.
Regulatory clarity in Europe in the form of MiCA, the Markets in Crypto-Assets Act, paints a stark contrast to the ambiguity in the U.S., where firms face new regulatory headwinds seemingly every day. This creates an increasingly challenging environment for the operations of any crypto organization. For new and existing market entrants this is going to be a significant consideration.
In addition, it seems that U.S. policymakers are doing their best to suffocate dollar on-ramps into crypto, leaving the door wide open for the rest of the world to gain a competitive edge over the U.S.
When it comes to trading, the good news for investors is the crypto industry has become increasingly less reliant on fiat currencies over the past few years. In fact, the percentage of market share of all volume on centralized exchanges for stablecoins just hit an all-time high following the Silvergate troubles last week as investors continue to prefer stablecoins to traditional fiat. In the last year alone, stablecoins have risen from 79% of volumes to over 90%, commanding the vast majority of volumes on exchanges.
Less of a reliance on fiat means the banking cutoff in the U.S actually directly hurts crypto investors less. Crypto investors are increasingly using stablecoins as a means of transacting, but the businesses behind the platforms traders use are not. It is these institutions themselves that will feel the brunt of a dollar (USD) cutoff first.
Having no access to a U.S bank means businesses such as exchanges will have to change their approach to the services they can offer. Take trading hours: If an exchange has no access to 24/7 USD payment networks, it is well within the realm of possibilities that U.S exchanges could only serve customers during U.S trading hours. In this scenario, U.S.-based investment funds could also suffer via the opportunity cost of missed trading strategies outside of trading hours.
Euro volumes, however, are showing that one region’s pain is another’s gain. Early indicators are that the euro may be a big winner of a U.S. crypto banking cutoff, with volumes spiking for the BTC-EUR pair as the Silvergate troubles ensued. The bitcoin-euro pair hit its highest level of market share against the U.S. dollar ever, rising to 21% of BTC volumes last week from 7% in November.
The question now is will a U.S bank come forward and raise its hand, welcoming crypto deposits? If the answer is no, not for a while, we could see the trend of rising euro volumes continue.
Whether a bank will raise its hand in the U.S is the million-dollar question. The bigger banks have no incentive to take on crypto deposits right now, especially with the consolidation of bigger banks we’re seeing in the banking sector.
It’s the smaller banks that need to attract a fresh wave of deposits as they struggle to compete with the likes of JPMorgan Chase in an ever-more oligopolistic market. In an ideal world, several smaller banks would open their doors to crypto, spreading the risk more evenly across a few different banks as opposed to all crypto deposits being concentrated in a couple of banks, as was the case before.
However, the smaller banks will see Silvergate and Signature as a stark example of banks that could not diversify their deposits to a level that ensured some protection from a bank run, and it could be a while yet before we see the next batch of banks open their doors to crypto.
That leaves a window of opportunity for Europe, and the euro, to gain relevance in an industry they have been lacking of late.