Institutional Crypto Trading Declined Following U.S. Banking Crisis
Institutional crypto trading has experienced a significant decline after a series of high-profile U.S. bank failures in March, according to blockchain intelligence platform Chainalysis. In their latest report on North American crypto activity, Chainalysis states that transaction volume for “institutional” trades worth over $10 million plummeted starting in April 2023. Meanwhile, “professional” and “retail” trading activity remained relatively stable during this period.
Impact of the March Banking Crisis
The report highlights that the contraction in crypto activity was more pronounced in the months following the March banking crisis, which led to the closure of Silicon Valley Bank and crypto-friendly banks Signature and Silvergate. This event compounded the existing trend of declining trading activity since the failure of several crypto exchanges and lending desks, including FTX and Alameda Research, in November.
The Downfall of Silvergate, Silicon Valley Bank, and Signature Bank
Following their respective downfalls, Silvergate was forced to wind down due to its suspicious ties to alleged fraud at FTX and Alameda Research. Silicon Valley Bank experienced a run on deposits after suffering a multi-billion dollar loss on its underwater bond portfolio. Signature Bank also faced receivership as panic spread across other banks.
The Impact on Crypto Businesses
The collapse of these banks left crypto businesses with limited options for accessing US dollar liquidity, forcing many to seek banking support offshore. Consequently, stablecoins, which account for 90% of global activity and are primarily USD-pegged tokens, saw a decline in presence in North America between February and June. The region’s share of crypto volume occupied by stablecoins dropped from 70.3% to 48.8%. Chainalysis notes that stablecoin inflows shifted from U.S. licensed services to non-U.S. licensed services since spring 2023.
Stablecoin Landscape Shake-Up
The banking crisis also had an impact on stablecoins, causing Circle USD (USDC), the second-largest stablecoin, to briefly lose its peg to the dollar. This event led many investors to abandon USDC in favor of Tether USD (USDT), which now has a market cap exceeding $82 billion.
Hot Take: Institutional Crypto Trading Hit by U.S. Banking Crisis
The collapse of major U.S. banks following the March banking crisis significantly affected institutional crypto trading. While professional and retail trading activity remained steady, institutional transaction volume plummeted. The downfall of Silvergate, Silicon Valley Bank, and Signature Bank strained the crypto industry’s access to US dollar liquidity, leading businesses to seek offshore banking support. Additionally, the crisis impacted stablecoins, with a decline in their presence in North America and the temporary loss of pegging for Circle USD. The consequences of this crisis highlight the interconnectedness between traditional banking and the crypto market.
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