Morgan Stanley Sees More Regulatory Scrutiny of Crypto On-Ramps as Silvergate Falters

U.S. regulators may be about to ramp up their actions against banks that offer services to crypto companies, Morgan Stanley said in a research report Wednesday.

The decision by crypto-focused Silvergate Bank (SI) to wind down, citing industry and regulatory developments, shuttered an on-ramp for converting fiat currency into crypto in the U.S., and regulatory action might lead to other avenues being closed, too, Morgan Stanley said.

The firm noted coordinated action by regulators to highlight the risks in U.S. banks offering crypto services. The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency issued a joint statement late last month warning banks to consider liquidity risks related to cryptocurrencies.

“Flows into the crypto sector will slow without the ability to provide on-ramps between the fiat and crypto,” analysts Sheena Shah and Kinji C. Steimetz wrote.

Silvergate has been at the “center of the growth of the crypto industry, as a U.S. registered bank providing crypto services to crypto exchanges,” the analysts said, noting that the bank's shares fell 58% on March 2 after the company said it was evaluating its ability to continue as a going concern and that it was being investigated by regulators and the U.S. Department of Justice and facing inquiries from Congress.

The focus for the cryptocurrency market will now be on rival crypto bank Signature Bank (SBNY) and Binance, which is the world's largest crypto trading platform by volume, and on any further regulatory actions related to specific companies or products, the note said.

Bitcoin (BTC) has dropped below the important $22,200 technical support level, the report added. At time of publication, the world’s largest cryptocurrency was trading at around $21,700.

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