The recent closure of three key US banks, Silvergate Bank, Silicon Valley Bank, and Signature Bank, has caused a stir in the global cryptocurrency market. However, Indian firms need not worry as it appears that little risk is posed to them.
Cryptocurrency firms are frantically looking for different banking options outside of the US due to concerns over possible liquidity shortages in the crypto system, as reported by Forbes last Friday (March 10).
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Silvergate Bank and Signature Bank had been catering to the digital asset economy. As per the New York State Department of Financial Services, the former had assets worth $110.36 billion and deposits of $88.59 million as of the end of 2022.
Although the third US bank, Silicon Valley Bank (SVB), had a very limited role in the digital asset market, global industry players remain concerned that its closure could have a knock-on effect on the Indian market. “There may not be any direct risk to Indian crypto exchanges, but maybe the liquidity providers to these exchanges will be affected, and in turn affect the liquidity at Indian exchanges,” said Sharat Chandra, co-founder of India Blockchain Forum, as quoted in Quartz.
The Indian cryptocurrency market has already been shrinking due to the introduction of a 30% tax on trading gains and a 1% tax deduction at source (TDS) in the Union Budget of 2022. This has led users to migrate to more crypto-friendly markets overseas, such as US-based Binance and Coinbase.
Indian Startups Feeling the Effects of SVB Closure
Silicon Valley Bank is a preferred banking partner for many Silicon Valley startups and venture capital firms, and is a key part of the funding wheel for venture debt and deposits for Indian startups. Data from Tracxn shows that at least 20 Indian startups have received funding from SVB, such as Paytm, One97 Communications, Bluestone, Carwale, Shaadi, and Naaptol, among others. However, it appears that SVB has not made any major investments in Indian startups since 2011.
The closure of the largest bank in Silicon Valley by deposits has raised fears that venture capital funding could be slowed down. “The deals won’t go away. They will be put on pause as VCs would prefer to focus on their portfolio firms. But this could be a very short-term impact,” said Abhay Singhal, co-founder of InMobi Group, as reported by Business Standard.
Moreover, the shutdown could cause difficulties for startups in meeting payrolls and other daily expenses.
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