Exclusive: GCEX’s Holst Talks Signature Bank Fallout

It has been a long day in the cryptoverse. After the collapse of the start-up Silicon Valley Bank sent shockwaves from Germany to Singapore, the panic soon spread to the crypto space, with the abrupt shutdown of the New York-based Signature Bank. A risky bet on crypto coupled with a bank run prompted regulators to act immediately. While notable crypto players, such as Coinbase and Paxos, have announced massive exposure, industry participant GCEX, an FCA-regulated digital brokerage, has cited limited exposure. Following the news, Finance Magnates reached out to the firm’s Founder and CEO, industry veteran Lars Holst, to get a behind-the-scenes glimpse into the drama.

What is your initial reaction to the news of Signature Bank's closure?

I was very surprised; we have been banking with Signature for years. We received the press release they issued on Thursday which highlighted their strong financial position and high level of capital. We haven’t had any communication from them since. In fact, I am still not very clear about why they had to close down. There has been a much stronger news focus on Silicon Valley Bank, including reasons for its collapse, but l have not seen any major reason behind Signature Bank’s collapse.

Given that many crypto companies have struggled to secure traditional banking partnerships, do you think that the collapse of the Silicon Valley and Signature Banks will make it even harder for crypto companies to access banking services?

It will definitely make it harder for crypto companies to access traditional banking services, especially US dollar banking services. It also leads to the question about why crypto companies would want to secure traditional banking partnerships if these banks are simply not open for business. The knock-on effect of this latest news is that crypto companies will rely more heavily on payment solutions providers and will move from direct banking relationships to indirect banking relationships.

Do you think Silicon Valley and Signature Bank's collapse could lead to increased interest in decentralized financial solutions?

Definitely. Why bother with traditional banking if a US bank, which should be stable, reliable and well-regulated, can collapse in this way? The collapse of Silicon Valley Bank and Signature Bank will result in a lack of confidence in the traditional banking system. In fact, regional banks are already seeing widespread fallout from the situation. I believe crypto companies would rather partner with decentralized counterparties who they can trust and rely on than turn to traditional banks, given the current situation. The issue we are seeing is all about the US banking system. The US banking system may now see stronger regulation but the existing levels of regulation already make it hard to do business with them. The increasing regulation will change the landscape, resulting in fewer banks in the US wanting to partner with crypto businesses. Effectively, it will lead to a monopoly – which is exactly what the US should be trying to avoid.

Some have suggested that the Silicon Valley and Signature Bank's collapse was due in part to its heavy reliance on cryptocurrency-related clients. How do you respond to this criticism, and how do you think other banks can avoid similar pitfalls?

The collapsed banks probably had a higher proportion of crypto clients than mainstream banks but they weren’t overly reliant on these crypto firms. Both Silicon Valley Bank and Signature Bank were well-capitalized banks so other factors clearly played a part here. The major pitfall was that clients lost confidence in these banks and started to pull their money – and no bank can sustain a run on it. The unfortunate outcome is that traditional banking for cryptocurrency-related clients will get more expensive. There will also be fewer banks open to business for crypto-related clients which will create a monopoly, killing innovation.

Do you think that traditional banks and crypto companies can find ways to work together more effectively, or do you see a future where decentralized financial solutions dominate the landscape?

It is up to the traditional banks if they want to find ways [to] co-operate. If they do, then they need to be open to change. If they don’t want to co-operate, then crypto companies will seek alternative routes. Crypto firms are disrupting the financial services sector, with cryptos eroding the current market in many ways in order to create a more efficient financial services sector. Unfortunately, the banks see crypto companies as competition and don’t have an interest in change. Instead, they want to protect their franchise and stick to the status quo. Until one or more traditional banks see a real opportunity here and embrace change, then decentralized financial solutions will begin to dominate the landscape. If traditional banks are unattractive to crypto companies, then crypto firms will find alternatives. This will drive innovation and result in new business opportunities.

Who do you think the successors of SVB and Signature Bank will be?

'In terms of a bank as a successor to SVB or Signature Bank, I think it will be a UAE bank.