JPMorgan's research report from Thursday highlights the challenge faced by the cryptocurrency industry following the collapse of Silvergate, a crypto bank, and the termination of the Silvergate Exchange Network (SEN). Silvergate's network was used by more than 1,000 institutional crypto market participants to transfer fiat currency between accounts, including major crypto exchanges, miners, stablecoin issuers, market makers, and digital asset fund managers.
Finding a replacement for this instantaneous network for processing dollar deposits and withdrawals among crypto market participants will be difficult due to the unwillingness of traditional banks to engage with crypto companies following the FTX collapse and high regulatory pressures. JPMorgan suggests that some of the payment and custody services provided by Silvergate may migrate to other banks such as Signature Bank, Provident Bancorp, Metropolitan Commercial Bank, and Customers Bancorp, but the capacity for these banks to replace Silvergate may be limited due to market and regulatory pressure to reduce crypto-related risks. The report suggests that institutional crypto investors in the US, especially smaller and less established market participants, may need to seek banking services in Europe or elsewhere, as entry for new depository institutions seems unlikely at present due to heightened regulatory scrutiny of cryptocurrency risks.