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The Senate Banking Committee will hold a meeting on Thursday to approve cryptocurrency legislation that further accomplishes many of the President’s goals. donald trumpThe promises to your crypto billionaire friends. In the race to finish the cryptocurrency industry’s wish list before the midterm elections, Congress should remember what happened the last time cryptocurrencies disrupted traditional banking. We’ve seen this movie before and the taxpayers paid for the tickets.
Last September, as a senior member of the Senate Permanent Subcommittee on Investigationspublished a 292-page report documenting how three large American banks received dubious audits indicating they were sound, just before their catastrophic bankruptcies cost the banks’ customers millions.
Our research gave us a unique window into how cryptocurrencies can quickly move from innovation to contagion. Silicon Valley Bank, Signature Bank and First Republic Bank all made profits when venture capital and cryptocurrencies prospered, but they all learned that tech money comes fast but leaves even faster, threatening banking stability and leaving taxpayers and investors on the hook for losses. These bank bankruptcies provide a chilling warning to anyone who supports the crypto lobby’s efforts to further entrench the unsavory world of cryptocurrencies in the American economy.
MALICIOUS MAC EXTENSIONS STEAL WALLETS AND CRYPTO PASSWORDS
Silicon Valley Bank collapsed following the bankruptcy of trading company FTX, the slowdown of the Bitcoin market, and the closure of cryptocurrency-focused Silvergate Bank. In early 2023, as their bets unraveled, crypto industry insiders pushed for rescues – fueling the panic that accelerated bank runs. The resulting turmoil threatened major technology companies and millions of depositors, ultimately requiring federal intervention to the tune of $340 billion to quell fears of contagion. Even then, more than $54 billion in stocks and bonds became worthless when banks collapsed, including $700 million that a pension fund lost in a single day. Unless Congress acts to put some barriers to the recently passed GENIUS Act, it will be only a matter of time before the industry again clamors for bailouts.
The historic speed of deposit drains at these banks demonstrated how modern finance is becoming faster and more reckless, especially with the introduction of crypto companies into the banking system. Technology made banking faster and it also made bankruptcies faster. More cryptocurrencies in the banking system increase the systemic risk of financial instability. Signature Bank is a clear example: it collapsed after its significant cryptocurrency-related deposits left the bank in the months following the FTX collapse. He Complexity and opacity of crypto markets. It also undermines traditional oversight. Signature Bank’s auditors failed to understand the risks and repeatedly assured the public that everything was fine year after year. But opacity is not a mistake of cryptocurrencies: it is the business model.
Now, the crypto industry has spent millions trying to pressure Congress and the Trump administration forget the past and allow them to take over banking and write their own investment rules. Cryptocurrencies are encouraging American consumers to abandon traditional bank accounts in favor of “digital dollars” called stablecoins. The industry is even trying to replace savings accounts by offering “yield” in tokens, the cryptographic equivalent of interest. While this new form of digital currency may seem attractive, stablecoins lack the basic safeguards that protected Silicon Valley Bank depositors when it collapsed in 2023.
The collapse of Silicon Valley Bank and the ensuing turmoil should have been a lesson: keep cryptocurrencies away from our financial system. The collapse of Silicon Valley Bank was not the fault of a few bad managers or reckless reporting by a single auditor. The cushy audits these banks received over the years lay bare a fundamental principle of finance: recklessness thrives when profits are private and losses are public.
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Right now, the cryptocurrency markets are in crisis. Since the GENIUS Act was passed last summer, half a dozen major stablecoins have “decoupled,” decoupling from the currency with which they claim to have a 1:1 relationship, wiping out hundreds of millions of dollars for anyone who holds the tokens. But this is just a small beginning. The current stablecoin market is approximately $300 billion. Coinbase’s CEO recently projected that it could quadruple by 2030. Considering what cryptocurrency volatility did to regional banks in 2023 after the FTX collapse, what threats could it pose when the life savings of millions of Americans and more banks depend on cryptocurrencies?
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My investigation revealed that Signature Bank’s auditors were joking among themselves as the bank collapsed. They thought their management was foolish because they relied on cryptocurrencies to boost their numbers and “look good… and wonder why they are falling apart when the floor falls out.” That casual cynicism captures the deeper failure exposed by the banking collapses of 2023: When cryptocurrency-fueled risk pays off, those tasked with policing it will look the other way.
As the Senate Banking Committee prepares to draft a bill on the structure of the cryptocurrency market, Congress should remember that the collapse of Silicon Valley Bank was no accident: it was a preview. That failure exposed how cryptocurrency-linked deposits, digital-speed bank runs and opaque markets can overwhelm regulators before the risks are visible. However, the legislation now being considered would push more of that volatility into the financial system under the guise of innovation and clarity. If MPs fail to confront the lessons of 2023, they will be trapped in the same weaknesses that forced taxpayers to intervene once before, and will inevitably be asked to do so again.
