Institutional Crypto Trading Hit Hard by U.S. Banking Failures: Chainalysis Report

Institutional crypto trading has faced a significant setback in the wake of a series of high-profile U.S. bank failures that transpired in March, reveals a report by blockchain intelligence platform Chainalysis.

The report, which delves into the latest trends in North American crypto activity, highlights a drastic drop in “institutional” transaction volume – transactions valued at over $10 million – commencing in April 2023. In contrast, smaller-scale “professional” and “retail” trading activities remained relatively stable during this period.

The authors of the report noted, “Crypto activity contracted more in the months immediately following the March banking crisis that saw Silicon Valley Bank and crypto-friendly banks Signature and Silvergate close down.”

This event exacerbates an ongoing trend of declining trading activity, a trend that gained momentum after the failure of several crypto exchanges and lending desks in the preceding year, with FTX and Alameda Research being notable casualties in November.

Subsequently, Silvergate found itself compelled to cease operations due to its suspicious associations with the alleged massive fraud at both firms, drawing it too close to the regulatory spotlight. Shortly after, Silicon Valley Bank (SVB) faced its own reckoning following a run on deposits prompted by a multi-billion dollar loss in its underwater bond portfolio. As panic rippled through the banking sector, Signature Bank also found itself in receivership.

Though each of these institutions faltered for distinct reasons, the repercussions were uniform: crypto businesses found themselves grappling for avenues to access U.S. dollar liquidity, leading many to seek offshore banking support.

Stablecoins, which account for a substantial 90% of global activity in USD-pegged tokens, began witnessing a significant decline in prominence in North America as early as February. Between then and June, the region’s share of crypto volume dominated by stablecoins plummeted from 70.3% to 48.8%.

Chainalysis further emphasized, “Since the spring of 2023, the majority of stablecoin inflows to the 50 biggest crypto services have shifted from U.S. licensed services to non-U.S. licensed services.”

The banking crisis sent shockwaves through the stablecoin landscape, leading to Circle USD (USDC), the second-largest stablecoin, temporarily losing its peg to the dollar. This upheaval prompted many investors to abandon the token in favor of Tether USD (USDT), which now boasts an impressive market cap exceeding $82 billion.

The aftermath of the March banking crisis continues to reverberate through the institutional crypto trading sphere, reshaping the dynamics of the industry and prompting market participants to seek out alternative strategies in an ever-evolving landscape.

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