Bank collapses are spurring interest in self-custody startups
4 min read
The collapses of Signature Bank and Silicon Valley Bank have left many people in disbelief, with skeptics questioning the stability of the traditional financial system.
Cryptocurrency, sadly, did not do much to capitalize on that skepticism, considering Bitcoin (BTC) tanked at the first sign of trouble for USD Coin (USDC), which briefly lost its peg to the dollar.
Still, the crisis also provided a golden opportunity for the crypto industry to demonstrate its resilience and offer viable alternatives. As faith in the traditional banking system wanes due to SVB causing “a crisis in confidence,” venture capital (VC) firms and startups are increasingly embracing self-custody solutions for digital assets, ensuring that individuals maintain full control over their funds.
The shift toward self-custody and decentralized finance (DeFi) systems is indicative of a larger trend that sees more people embracing cryptocurrencies and the principles of financial sovereignty. This increased interest in decentralized solutions is fueling innovation and investment in the space, which is ultimately good for both the crypto ecosystem and the broader financial landscape.
Related: Let First Republic and Credit Suisse burn
Some readers may find the notion of celebrating a bank’s collapse objectionable, arguing that it undermines the credibility and importance of established financial institutions. Additionally, others may argue that the promotion of cryptocurrencies and self-custody can be viewed as opportunistic, capitalizing on a crisis to advance a particular agenda.
The current financial landscape is undergoing a major transformation, with many people expressing distrust in traditional financial institutions. A recent survey revealed that 85% of “US institutions account for 85% of Bitcoin buying.” This preference for digital assets is not only evident among institutional investors but also among retail investors. A 2022 survey by the Economist found that 85% of investors “agree there is a need for open-source digital currencies as a diversifier in a portfolio or treasury account.”
FDIC seizes Silicon Valley Bank and takes control of its deposits. Regulators shouldn’t push bank custody for digital assets in the future. Multi-hundred billion dollar banks going bankrupt and swinging 10-30%+ in days doesn’t inspire confidence in the system. #Bitcoin #Gold pic.twitter.com/vubKN2bVwj
— Gabor Gurbacs (@gaborgurbacs) March 10, 2023
The growth of Bitcoin and other cryptocurrencies has been accompanied by the rise of DeFi, which offers users decentralized financial services such as lending, borrowing and asset management. DeFi protocols have attracted billions of dollars in investments, providing people with financial services that are free from the constraints of traditional banks. The bank collapse has only served to highlight the merits of these decentralized systems, which offer users more control over their funds and greater transparency.
As a response to the growing demand for decentralized financial solutions, VC firms are increasingly investing in startups focused on self-custody and DeFi — e.g., more decentralized infrastructure. Such investments demonstrate the commitment of VC firms to support innovation in this burgeoning field.
The shift toward self-custody solutions also has the potential to transform the way people manage their digital assets. By offering individuals full control over their cryptocurrencies, self-custody wallets eliminate the need for intermediaries and empower users to take responsibility for their own funds. This could lead to the emergence of new business models and decentralized applications that cater to the needs of an increasingly digital-savvy population.
Bank collapses present a challenge, but they also serve as an important catalyst for change. This crisis has prompted people to reconsider their reliance on traditional financial institutions and explore alternative solutions, such as cryptocurrencies and self-custody. By embracing these emerging technologies, VC firms and startups are not only helping to shape the future of finance but also creating a more resilient and inclusive financial system for all.
Related: Collapse of Silvergate and Silicon Valley Bank represents a challenge for crypto
With an influx of capital and innovation in the crypto space, it is evident that the bank collapse has inadvertently bolstered the growth and adoption of cryptocurrencies. As more people embrace self-custody solutions and decentralized financial services, the stage is set for a new era of financial sovereignty that challenges the status quo and redefines our understanding of money.
By investing in self-custody startups and decentralized financial services, crypto users can increase the security and visibility of their digital assets. This makes it less likely that Bitcoin will collapse when another bank fails or if another black swan event occurs, such as another huge bank run.
Jan Strandberg is the CEO of Acquire.Fi. His tenure in the crypto industry goes back to Paxful, where he served as chief growth officer. He also served as the chief growth officer and co-founder of the Yield App.
This will inevitably create a more resilient financial system, one that is secure and inclusive for all, one where you don’t have to worry about losing your money overnight, but instead, you will be able to store your money in a secure digital vault just like a bank.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph
