11 days ago 3 min read

Banking Shutdown In US Creates Opportunity For Bitcoin In Europe


A chance for Europe to profit from the crisis arises as crypto companies in the US look for alternatives to Silvergate and Signature Bank.

In terms of crypto innovation, Europe has at times found it difficult to stay up with the United States. It has seemed that the U.S. has been the core of cryptocurrency from its birth, whether that be through stablecoins, trade volumes, or adoption.

However, the longer it takes for U.S. banks to declare that they are open for crypto businessā€”that is, willing to accept some of the millions of dollars that were once parked at Silvergateā€”the more likely it is that crypto firms will choose a location like Europe, where regulations are more transparent and fiat payment rails are simpler.

The Markets in Crypto-Assets Act (MiCA), which provides legal clarity in Europe, stands in stark contrast to the murky regulatory landscape in the United States, where businesses appear to encounter new regulatory challenges every day. Any crypto organization's operations are put in an atmosphere that is getting more difficult as a result. This will be an important factor to take into account for both new and existing market participants.

Additionally, it appears that American politicians are making every effort to stifle dollar on-ramps into cryptocurrencies, leaving the door wide open for other countries to surpass the U.S. in terms of competitiveness.

The good news for investors is that the crypto business has become less dependent on fiat currency over the past few years when it comes to trading. Following the Silvergate issues last week, the percentage of market share of all volume on centralized exchanges for stablecoins has actually just risen to an all-time high as investors continue to favor stablecoins over conventional currency. Stablecoins now account for the great bulk of exchange volume, up from 79% to over 90% in only the last year.

Because there is less reliance on money, crypto investors are less negatively impacted by the U.S. banking shutdown. Stablecoins are becoming more and more popular among cryptocurrency investors as a medium of exchange, but not with the companies who run the trading platforms. These institutions will be the ones to suffer the most from a dollar (USD) shutdown first.

Without access to a U.S. bank, organizations like exchanges will need to modify the services they provide. Consider trading hours: If an exchange does not have access to USD payment networks that are available around-the-clock, it is very possible that it will only be able to serve consumers during U.S. trading hours. In this case, the opportunity cost of foregone trading tactics outside of trading hours might also hurt investment funds with U.S.-based investors.

Profits In Euros

Yet, Euro volumes demonstrate that what hurts one region, helps another. Early signs point to the euro perhaps benefiting greatly from a U.S. crypto banking ban, with volumes for the BTC-EUR pair surging as the Silvergate issues continued. The market share of the bitcoin-euro pair in relation to the US dollar reached a record high last week, jumping to 21% of BTC volumes from 7% in November.

Will a U.S. bank raise its hand to accept cryptocurrency deposits at this point? The trend of increasing euro volumes may continue if the response is no, at least not for a time.

The big question in the US is whether a bank will raise its hand. Given the consolidation of larger banks that we are currently witnessing in the banking industry, the bigger banks currently have no need to accept crypto deposits.

Smaller banks are those who need to draw in a new influx of deposits since they are struggling to compete in a market that is becoming more and more oligopolistic with companies like JPMorgan Chase. In a perfect scenario, multiple smaller banks would accept cryptocurrency, distributing the risk more fairly across a few different institutions rather than having all cryptocurrency deposits concentrated in just a few, as it was in the past.

It might be some time before the next group of banks opens its doors to cryptocurrency since the smaller banks will view Silvergate and Signature as a glaring illustration of institutions who were unable to diversify their deposits to the extent that would have provided some protection against a bank run.

This creates a window of opportunity for Europe and the euro to establish themselves in a sector where they have recently lagged behind.

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