Crypto-friendly Signature Bank will stop handling transactions under $100K US dollars for its Binance clients from February 1st, 2023. 

Binance quotes the bank’s statement, declaring that similar moves will be applied for all of the bank’s partner cryptocurrency exchanges. None of them have confirmed the fact yet, the bank included.

Crypto space speculates that the bank’s move may result from increasing regulatory scrutiny. So what does it mean? And should we start worrying?

Signature Bank (SBNY) is one of the rare financial institutions providing banking services for the crypto industry. With its strategic focus on medium size companies that are “underserved by the big banks,” it has offered services for digital asset exchanges, bitcoin miners, and stablecoin issuers since 2018. 

Exposure to the crypto niche turned out beneficial. Signature Bank more than doubled client deposits, reaching a record $103 billion in 2021. Nearly one-quarter (23.5%) of total deposits came from crypto-related businesses.

After the FTX crash, the bank announced plans to cut its crypto exposure and eventually reduce digital asset-related deposit amounts from 23% to 15%, thus more than $10 billion. 

New York-based Signature Bank currently processes fiat currency payments for almost all major cryptocurrency exchanges.

Coinbase, Kraken, Huobi, Bitstamp, and the smaller ones have integrations with Signet, the bank’s blockchain-based digital payments platform. This allows bank business clients to fund and settle their accounts on crypto exchanges 24/7.

As far as we know, Signature’s crypto-related clients deposited more than $24.5 billion in funds in 2021 and nearly as much by the end of September 2022. 

The number makes 0.17% of the total $14 trillion trading volume aggregated by centralized exchanges (CEXes) in 2021. Not much, and at the same time, not little, if we consider that the number of digital currency-friendly traditional commercial banks is quite scarce.

According to Binance, Signature Bank’s customers account for 0.01% of its average monthly users. Other crypto exchanges do not provide statistics. 

In the meantime, most leading cryptocurrency trading platforms generate revenue from retail customers. In other words, people who trade on their accounts, not from institutional clients like large asset managers, venture capital firms, or hedge funds. 

Value transfers above $100K are typically considered large transactions and are more often operated by business clients than private individuals. Hence, Signature’s move to cut off crypto-related transactions under $100K could mean that it will now only focus on large-scale institutional clients. 

One of the bank’s large-scale clients could be any existing partners-crypto exchanges. The bank’s message to Binance has not mentioned cutting off all the crypto-related transfers, just the smaller ones.

For a fuller picture, a month before the FTX crash, Signature Bank (SBNY) signed a partnership deal with one of the biggest US digital asset exchanges, Coinbase, to provide real-time settlement through Signet. 

Coinbase signed a contract with Google the same week, agreeing to operate crypto payments for Google cloud services. The timing, indeed, might be a coincidence. But it may also signify that Coinbase is expanding its horizons to large institutional clients.

There would be a reason for this. In August 2022, when the crypto market was already knocked down by the Terra Luna crash and the subsequent high-profile bankruptcies, Coinbase partnered with the world’s largest asset manager BlackRock. The deal meant Coinbase would provide BlackRock’s investment management platform with direct access to crypto.

BlackRock generated $300 billion of inflows within the past year. Despite that, its assets under management dropped by 14.4% percent due to harsh market conditions, rising inflation, interest rates, and the geopolitical situation.

As of today, BlackRock Inc. is one of the largest shareholders of Coinbase. The wealth manager is also the second largest shareholder of Signature Bank. 

Signature Bank’s decision to reduce ties with its cryptocurrency clients coincides with the increasing regulatory pressure against crypto-friendly banks.

On the first days of this year, the US Federal Depositors Insurance Corporation (FDIC), Federal Reserves, and The Office of the Comptroller of the Currency (OCC) issued a joint statement on crypto-asset risks to banking organizations.

The document showed the agencies’ belief that “issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network, or similar system is highly likely to be inconsistent with safe and sound banking practices.”

The message from regulators comes in a stronger tone than their previous statements on clarifying the regulatory framework for cryptocurrencies. This signifies that institutions are concerned with the safety of business models involved in crypto-related activities.

Although the regulatory bodies claim that they are neither prohibiting nor discouraging banks from “providing banking services to customers of any specific class or type,” the strengthening oversight could push financial institutions away from the digital asset sector. 

If this happens, decentralized money adoption may eventually slow down.