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- What – Brian Armstrong, the CEO of Coinbase, has revealed that the company had previously considered adding features to become a neobank.
- Why – There are ongoing discussions within the cryptocurrency community about the recent closure of three major American banks.
- What Next – Many are calling for neobank services to be offered for the industry. Coinbase CEO Brian Armstrong has previously stated that the exchange has considered adding neobank features.
SVB, a bank serving startups in various industries, was closed down by the Department of Financial Protection and Innovation of California on March 10.
The Crypto-Friendly Banks Shut-Down
The closure of Silicon Valley Bank (SVB) on March 10, which has traditionally catered to startups across different industries, has caused shockwaves in the crypto community. Circle, the issuer of USD Coin, had over $3.3 billion of its $40 billion reserves locked up in the bank, raising concerns about the industry’s reliance on traditional financial institutions.
Signature Bank, another bank serving the cryptocurrency industry, also faced a similar fate as Silicon Valley Bank. On March 12, the New York Department of Financial Services took control of the bank to prevent a bank run as customers rushed to withdraw funds from both Signature Bank and Silicon Valley Bank.
The closure of SVB had a significant impact on the cryptocurrency industry, causing major uncertainty around Circle’s ability to manage redemptions and leading to a brief loss of the $1 peg for the USDC stablecoin.
Circle CEO Jeremy Allaire revealed that the company had secured new banking partners in the US, leading to USDC regaining its $1 peg after briefly losing it due to uncertainty caused by the closure of Silicon Valley Bank.
Following the recent closures of several major banks serving the cryptocurrency industry, there is heightened scrutiny regarding the relationships between crypto and traditional financial institutions that facilitate fiat transactions.
Will Coinbase Become A Neobank?
On March 13, Coinbase CEO Brian Armstrong tweeted that the American cryptocurrency exchange had previously contemplated offering features that could help bridge gaps exposed by the latest mainstream banking failure or bypass them altogether.
Ryan Lackey of Evertas questioned if Coinbase had considered offering neobanking services to high-net-worth individuals and businesses, in light of recent mainstream banking failures.
“Hey @brian_armstrong and @coinbase — after the SVB hell over the weekend, why don’t you set up Coinbase as some kind of HNW + business neobank, with the “pass through assets to community banks and treasuries” as a first-class option in parallel with crypto.”
Armstrong responded to Lackey’s question by saying that Coinbase has considered offering neobanking services and would need to add various features to make it work. He also encouraged others to share their thoughts in the thread.
“Definitely something we’ve thought about. Need a few more features like outbound wires, multi-user support etc. Non-fractional reserve “banking” is definitely looking more attractive right now.”
Coinbase confirmed it had approximately $240 million held at Signature Bank on March 10, but it expects to recover all of its cash holdings.
The closure of Silicon Valley Bank and Signature Bank raised concerns over potential runs on other banks across the US. There are also reports that the US Federal Reserve and Federal Deposit Insurance Corporation are considering the creation of a fund to cover deposits in struggling banks.
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