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KanawatTH
Banks around the world have reduced their cryptocurrency assets under custody to EUR 1.0B (US$1.06B) in 2022 from EUR 3.0B in 2021, according to a recent study by the Bank for International Settlements.
The roughly 66% drop in banks’ crypto custody over the past year coincided with a market crash stemming from a slew of high-profile failures, ranging from the collapse of the Terra blockchain (LUNC-USD) (UST-USD) in May to crypto exchange FTX’s (FTT-USD) implosion in November. Bitcoin (BTC-USD), the largest token by market cap, sank about 65% during the year, marking the worst Y/Y slump since plunging ~75% in 2018.
In addition, the Basel Committee on Banking Supervision, the primary global standard setter for banking rules, approved new regulations late last year whereby a bank’s exposure to a certain crypto must be capped at 2%. The BIS cited this move as another reason for the drop in depository institutions’ crypto custody, although the proposed rules won’t take effect until the beginning of 2025.
When taking account of the participating banks in addition to those that did not report crypto custody exposures (but joined the wider Basel III monitoring exercise), total exposure was 0.001% versus 0.005% for only those that reported. Clearly banks have marginal exposure to crypto, which makes sense as many regulators raised their concerns about financial stability risks surrounding crypto banking.
Still, banks’ total prudential crypto exposures, including synthetic or derivative exposures, climbed 30% Y/Y to EUR 2.9B, given “increased underlying cryptoasset activity,” the study found. The underlying assets of the reported crypto exposures were primarily bitcoin (BTC-USD), 43%, Coinbase (NASDAQ:COIN) stock, 29%, and ethereum (ETH-USD), 4%.
Silvergate Capital (NYSE:SI) took the spotlight in recent days as the crypto-friendly bank faces an exodus of institutional clients, including Coinbase Global (COIN) and Galaxy Digital (OTCPK:BRPHF), after noting it will delay filing its annual report and revealing doubts about its viability. The latest blow to the industry was reflected in the price of bitcoin (BTC-USD), sliding 4.7% to $22.36K as of Friday afternoon.
Amid the prolonged market turmoil, Signature Bank (NASDAQ:SBNY) has been working to limit its digital currency deposit exposure to less than 20% of total deposits. In its recently issued mid-Q1 financial update, the lender said its spot deposit balances dipped by around $826M due to notable crypto deposit outflows of $1.51B.
Other banks that have made their foray into the decentralized finance (DeFi) space include: Goldman Sachs (NYSE:GS), SVB Financial (NASDAQ:SIVB), Customers Bancorp (NYSE:CUBI), Metropolitan Bank (NYSE:MCB), Bank of New York Mellon (NYSE:BK), BNP Paribas (OTCQX:BNPQF) (OTCQX:BNPQY) and Leumi (OTCPK:BLMIF).
Previously, (March 3) two of the biggest advocates of cryptos among congress pushed back against the SEC’s crypto accounting policy.
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