Following an unprecedented 2022, 2023 was supposed to put the financial sector back on track. Indeed, 2023 was looking particularly promising, at least until a little over a week ago. NASDAQ indices were trending positively. And while the crypto market cap has not yet recovered from the collapse of 2022, it has been well above the $1B valuation for a while. The great ‘unbanking’ or is it ‘debanking’? However, within slightly under a week, three of the most crypto-friendly banks in the US have shuttered at the hands of the US regulators. Silvergate was the first to go down by announcing that it was shuttering operations on March 8. Silicon Valley Bank, the popular tech and VC bank, was next to fall, shutting down on March 10. Then Signature Bank, a prominent bank with a strong crypto-focus, was unexpectedly seized by the New York District of Financial Services (NYDFS) on March 12. The ripple effects of these events have yet to be understood, but already Credit Suisse and a variety of US banks, including First Republic Bank, were either taken over or propped up by central banks, the FDIC, and large national banks. Since then, talks of expanding the federal programs that provide liquidity to banks have relieved some of the pressure. The banking industry is not out of the woods yet. Nearly 190 U.S. banks are in danger of uninsured market runs (similar to that of SVB), according to a recent report. While Treasury secretary Janet Yellen and Federal Reserve Chair Jerome Powell take turns reassuring depositors that the banking system is strong and resilient, the market may still be on the brink of the largest and most brutal banking crisis ever. Was the writing on the wall? In January, a joint statement by the FDIC (Federal Deposit Insurance Corporation), OCC (Office of the Comptroller of the Currency), and the Federal Reserve “strongly discouraged” banks from supporting crypto. This seems to be an ongoing theme as Signature Bank director Barney Frank suggested the bank had been closed due to regulators wanting to send an “anti-crypto message”. The NYDFS has since pushed back on Frank’s statement. Others in the administration seem to believe that the writing was on the wall. For example, Senator Warren strongly suggested so following the crisis at Silvergate Bank: However, the Blockchain Association, and a few others, have another view on the situation. On March 16, the Blockchain Association submitted Freedom of Information Act requests to the FDIC, the board of governors of the Federal Reserve System, and the OCC for documents and communications that could potentially show that regulators’ actions “improperly contributed” to the collapse of the three banks. Who are some of the winners and losers of the banking crisis? Regardless of who, or what is to blame, there are several winners and losers so far. Here is a short list of some of them: Winners Europe and other jurisdictions – The increased scrutiny of crypto activities in the US has actors looking for alternatives. For example, Bloomberg reported that Coinbase is looking to set up a new trading platform off-shore. Neobanks – such as Meow and Mercury have already announced a windfall of new clients. Suggesting that companies are looking for a place to ‘park their cash’. With clear tactics, the ability to insure over FDIC limits, and the ability to open new accounts quickly, these players are well-positioned to take market share from some of their larger counterparts. UBS, HSBC, and First Citizen’s Bank – are now acquiring the business of Credit Suisse and SVB at a deep discount. UBS is said to be acquiring Credit Suisse’s market cap of nearly $8B USD for just over $3.25B USD as part of an ‘emergency ordinance’. HSBC is said to be acquiring SVB’s UK operations for a grand total of 1 GBP. While First Citizen’s Bank agreed to buy SVB’s deposits and loans. It remains to be seen how these discounts pan out in the long run. Bitcoin – Purists are looking at the situation with that ‘I told you so’ attitude, saying Satoshi himself predicted such situations after developing BTC as an alternative to the centralized banking system. In fact, Purists have rallied, driving the price of BTC to new highs. Self-custody start-ups – according to a recent article: The waning faith in the traditional banking systems is driving consumer demand for self-custody. This increased interest in decentralized solutions is fueling innovation and investment. Losers U.S. crypto community and those institutions interested in serving the community – With the closing of the banks the US has lost two of its most popular crypto on- and off-ramps. This is already leading consumers to look for alternatives, while European players are vying for their business. The US banking regulators are not making any moves to speed up the approval process allowing crypto-native companies to operate as regulated custodians. For example, Custodia’s (formerly Avanti) application to join the Federal Reserve System was denied in late January, after a two-year waiting time. Other firms, such as Paxos and Protego, are still waiting for answers. U.S. economy – With digital asset business going elsewhere, the US may lose its competitive positioning in financial markets. However, market share is not all that is at stake. Innovation, participation in the future economy, as well as access to revenue-generating blockchain-based services could severely impede the ability of the economy to grow and thrive. Central Bank and the US Federal Reserve – The Washington Post reports that so far cash short banks have borrowed nearly $300 billion. Add to this, the record amount of new ‘discount window’ loans ($153 billion), and an additional $12 billion from a new lending facility. Cha-ching! While the sides take turns blaming the other, the clear losers in the battle are US consumers. If trust and public confidence in crypto-native CEXs and trading platforms hit bottom with the collapse of FTX, now consumers have reason to question the resilience of the traditional banking system. Regulators would be wise to heed to words of William Shakespeare: “Let not the world see fear and sad distrust govern the motion of a kingly eye”. In other words, don’t let fear decide your future.