Adam Cochran: The fall of Silvergate is not the failure of cryptocurrency, but the failure of banking industry

On March 9, Adam Cochran, partner of Cinneamhain Ventures, tweeted that the failure of Silvergate was not due to the risks or illegal acts related to cryptocurrency, but because it followed the rules of the United States Office of the Comptroller of the Currency (OCC) on some reserves, purchased low-liquidity municipal bonds, and then ran on banks. This is the failure of the banking industry, not the failure of cryptocurrency.

Interpretation of this information:

The failure of Silvergate, a cryptocurrency-friendly bank, has been a hot topic in the crypto community ever since it was reported earlier this year. Many have argued that the bank’s decision to focus on crypto was the reason for its downfall, but Adam Cochran, partner of Cinneamhain Ventures, has a different perspective. In a tweet on March 9, he suggested that the bank’s failure was not due to any risks or illegal acts related to cryptocurrency, but rather because of its adherence to the rules set forth by the United States Office of the Comptroller of the Currency (OCC) on some reserves.

Cochran went on to explain that Silvergate had purchased low-liquidity municipal bonds, which made it highly vulnerable to a bank run. In other words, the bank simply did not have enough liquid assets to meet the demands of its customers when they started to withdraw their funds. While this may not have been a problem in the traditional banking world, where regulations are more lax and banks have greater flexibility in how they manage their reserves, it was a significant issue for Silvergate due to the OCC’s strict guidelines.

So why did Silvergate purchase these municipal bonds in the first place? Cochran suggests that this was likely because the bank was trying to generate higher returns on its assets. Cryptocurrency is still a new and emerging industry, and many banks in this space are still trying to figure out how to best allocate their resources. Unfortunately, Silvergate’s decision to purchase these bonds ultimately backfired, leading to its collapse.

What does this mean for the crypto industry? Cochran argues that this is not a failure of cryptocurrency, but rather a failure of the banking industry as a whole. While there are certainly risks and challenges associated with the crypto market, these are not unique to this industry. Banks have always faced risks when managing their reserves, and in this case, Silvergate made a mistake that could have happened regardless of whether or not it was dealing with cryptocurrency. It’s a reminder that just because an industry is new and exciting doesn’t mean that it’s immune to the same risks and challenges that have always existed in the world of finance.