With U.S. crypto companies scrambling to find alternatives to Silvergate and Signature Bank, Europe can cash in.
Europe has sometimes lagged behind the United States in terms of cryptographic advances. From the beginning, the United States has seemed to be where crypto is, whether we're talking about stablecoins, trade volumes, or acceptance.
Nevertheless, suppose U.S. banks don't announce they're open for crypto business (i.e., willing to take in some of the millions of dollars formerly parked at Silvergate). In that case, crypto enterprises may look elsewhere, such as Europe, where there is greater regulatory certainty and more straight fiat payment rails.
Compared to the regulatory uncertainty in the United States, where businesses appear to encounter new obstacles daily, Europe's Markets in Crypto-Assets Act (MiCA) provides a welcome dose of clarity. Because of this, it's getting harder for any crypto group to run smoothly.
This is a significant factor for current and potential new market entrants. Furthermore, it appears that U.S. politicians are actively working to choke dollar on-ramps into crypto, opening the way for the rest of the world to acquire a competitive advantage over the U.S.
The good news for traders is that the cryptocurrency market has become less dependent on traditional currencies over the past few years. Stablecoins continue to be preferred by investors over fiat currency, with their proportion of trading activity on centralized exchanges reaching an all-time high last week despite the Silvergate problems. Stablecoins now account for more than 90% of trading volume, up from 79% in the past year.
As crypto investors rely less on fiat currency, they will feel less directly impacted by the U.S. banking shutdown. Cryptocurrency investors increasingly turn to stablecoins for transactions, but exchange operators are slow to adopt the trend. These institutions would be the first to suffer the effects of a sudden reduction in available U.S. dollars (USD).
Companies, like exchanges, will need to adjust their service models without the ability to deposit funds in a U.S. bank. For example, business hours entail: U.S. exchanges may only be able to accommodate consumers during U.S. trading hours if they do not have access to USD payment networks throughout the clock. The opportunity cost of U.S. investment funds failing to use off-market trading tactics might also be detrimental.
Gains for the Euro
The Euro volume data, however, demonstrates that the loss in one region equals the gain in another. Trading volumes for the BTC/EUR pair skyrocketed as the Silvergate problems unfolded, suggesting that the euro may be a huge beneficiary of a U.S. crypto banking restriction. Compared to November, when it accounted for just 7% of BTC trades, the bitcoin-euro pair reached a new all-time high last week, accounting for 21%.
Will a U.S. financial institution ever put its hand up and say it would accept cryptocurrency deposits? If the answer is "no," at least for the foreseeable future, the growing amount of euros may continue.
The question worth a million dollars is whether a U.S. bank will raise its hand. Large financial institutions have little motivation to accept cryptocurrency deposits, especially in light of the ongoing trend of mergers and acquisitions among the industry's largest banks.
As oligopolies like JPMorgan Chase expand their market share, smaller banks like those in the U.S. must attract new depositors to stay afloat. In a perfect scenario, several smaller banks would begin accepting cryptocurrency deposits, so distributing the associated risk more widely over a more significant number of institutions than now, when only a small number of banks hold all cryptocurrency deposits.
Nonetheless, smaller banks will look at Silvergate and Signature as extreme examples of institutions that couldn't diversify their deposits to a level that offered some protection against a bank run, so it may be a while before the next round of banks opens their doors to crypto. That creates an opening for Europe and the euro to return to a field where they have fallen behind.Also read
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