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US Banking Cutoff Presents Opportunity for Crypto in Europe

BusinessCryptoUS Banking Cutoff Presents Opportunity for Crypto in Europe
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As crypto firms in the US scramble for alternatives to Silvergate and Signature Bank, an opportunity presents itself for Europe to capitalize on the disaster.

Europe has at times struggled to keep up with the US in terms of crypto innovation. Whether it is through stablecoins, trading volume or adoption, it has felt like the US has been the epicenter of crypto since its inception.

Conor Ryder is a research analyst at leading crypto data firm Caco.

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However, the longer it takes for US banks to declare that they are open to crypto business – that is, receptive to taking some of the millions of dollars once in Silvergate – the more likely it is that crypto firms will enter Europe with far more. You can choose like Regulatory clarity and easy fiat payment rails.

Regulatory clarity in Europe in the form of the MiCA, the Markets in Crypto-Assets Act, contrasts with the ambiguity in the US, where firms face new regulatory hurdles every day. This makes for an increasingly challenging environment for any crypto organization to operate in. This is going to be an important consideration for new and existing market entrants.

Furthermore, it seems that US policymakers are doing their best to strangle the dollar’s on-ramp in crypto, leaving the door wide for the rest of the world to gain a competitive edge over the US.

See also: The Future Of Crypto Markets Will Be Driven By Developments In The East / Opinion

When it comes to trading, the good news for investors is that the crypto industry has become less dependent on fiat currencies over the years. In fact, the percentage of market share of all volume on centralized exchanges for stablecoins reached an all-time high last week following the Silvergate troubles as investors continue to prefer stablecoins to traditional currencies. In the past year alone, stablecoins have grown from 79% of volume to over 90%, controlling the vast majority of volume on exchanges.

Less reliance on fiat means that the banking cutoff in the US actually hurts crypto investors less directly. Crypto investors are using the stablecoin as a means of transaction, but the businesses behind the platforms used by the traders are not. It is these institutions that will bear the brunt of the one dollar (USD) cutoff first.

Not having access to a US bank means that businesses such as exchanges will have to change their approach to the services they provide. Take trading hours: If the exchange does not have access to a 24/7 USD payment network, it is within the realm of possibility that US exchanges may serve customers only during US trading hours. In this scenario, US-based investment funds may also suffer from the opportunity cost of trading strategies executed outside trading hours.

euro profit

However, Euro volume is showing that one sector’s pain is another’s gain. Early indications are that the Euro could be a big winner of the US crypto banking cutoff, with Silvergate troubles in the form of a volume spike for the BTC-EUR pair. The bitcoin-euro pair gained market share against the US Dollar at its all-time high, rising from 7% in November to 21% of BTC volume last week.

The question now is, will any American bank come forward and raise its hand welcoming crypto deposits? If the answer is no, then not for a while, we may see the trend of rising Euro volume continue.

Will a bank get its hands on the US is the million-dollar question. Big banks have no incentive to take crypto deposits right now, especially with the big bank consolidation we are seeing in the banking sector.

It’s the smaller banks that need to attract a new wave of deposits as they struggle to compete with the likes of JPMorgan Chase in an ever-more elite market. In an ideal world, many smaller banks would open their doors to crypto, spreading the risk more evenly across a few different banks, rather than concentrating all crypto deposits in a few banks, as was the case previously.

However, smaller banks will look to Silvergate and Signature as a clear example of banks not diversifying their deposits to a level that ensures some protection from bank runs, and that’s before we see the next batch of banks. Open it may take some time. Their doors to crypto.

This leaves a window of opportunity for Europe, and the Euro, to regain relevance in an industry they have been lacking of late.

See also: Banking crisis in US likely to push crypto firms offshore / finance

The views and opinions expressed here are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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