Senator Warns Crypto Threatens Banks: Will SVB Regroup?
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Hassan Shitu
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As the Senate Banking Committee prepares to mark new crypto market structure legislation this week, a warning from a senior Democratic senator has sparked debate over the role of crypto in the US financial system and its link to bank failures by 2023.
The senator argues that the collapse of the Silicon Valley bank was not an isolated disaster, but an early sign of what happens when crypto-related activity collides with an already fragile banking system.
The warning is based on the findings of a 292-page investigation released last September by the Senate Permanent Subcommittee on Investigations.
Senator Warns How Crypto-Era Banking Will Work Until It's Too Late
In comments on Fox News, Senator Richard Blumenthal examined the failures of Silicon Valley Bank, Signature Bank and First Republic Bank, all of which received clean audits shortly before their collapse.
The senator said those audits range from fast-moving deposit accounts, unclear vulnerabilities and a business model that affects crypto and venture capital flows that come in and out quickly.
According to the senator, the Silicon Valley bank failure followed a typical pattern.
During the years of cheap cash growth, the bank attracted large deposits from technology startups and venture-backed firms, including companies related to the crypto sector.
Confidence evaporated when conditions changed after interest rates were raised and major crypto companies like FTX collapsed. Shock spread quickly through digital channels, and withdrawals accelerated at historic speeds.
Regulators eventually provided about $340 billion in emergency aid to prevent a wider spread. Even so, more than $54 billion in equity and bond value was lost.
The senator pointed to Signature Bank as a more obvious example of crypto-related risk. Signature actively nurtures digital asset firms and has built a large base of crypto-related deposits.
In the year After the collapse of FTX in late 2022, those deposits came out en masse.
Auditors repeatedly assured the public that the risks were under control as the bank failed to close months later.
For the senator, this failure shows how crypto's complexity and lack of transparency can overwhelm traditional oversight before regulators can react.
In particular, concern extends to stablecoins (Statcoins), which the senator markets as a “digital dollar” alternative to bank deposits.
With the stablecoin market valued at around $300 billion and forecast to quadruple by 2030, he warns that the losses could be huge if safeguards are not put in place.
After the Genius Act passed last summer, several major cryptocurrencies lost hundreds of millions of dollars in value and temporarily lost their pegs.
Until it's too late, past regulators have slipped up on how Crypto-Era banking works
Crypto industry figures strongly dispute that framing, as market analysts and executives argue that blaming crypto for the failure of Silicon Valley banks rewrites well-documented facts.
They point to the main failure of the SVB as a textbook interest rate treatment.
When rates were low and unable to hedge that exposure, the bank invested heavily in long-term US Treasuries.
As prices soared, losses were locked in and more than 90% of deposits were concentrated among the uninsured and tight-knit tech community, making the run inevitable once confidence cracked.
Silvergate Bank, critics note, presented a different case as its failure was directly linked to the volatility of the crypto market and the lack of confidence following the collapse of FTX.
Deposits fell 68% in one quarter, forcing the bank to sell its assets at a loss of $718 million and eventually go bankrupt.
Even there, crypto defenders argue that concentration risk and poor balance sheet resistance were critical, with crypto acting as a catalyst rather than the root cause.
They also reject the idea that “digital-speed” runs are unique to crypto.
Banking has happened for centuries without smartphones or blockchains. They say technology has accelerated the process but not created the vulnerability.
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