As the Senate Banking Committee prepares to mark up new crypto market structure legislation this week, a warning from a senior Democratic senator has reignited debate over crypto’s role in the U.S. financial system and its connection to the banking failures of 2023.
The senator argues that the collapse of Silicon Valley Bank was not an isolated accident but an early signal of what happens when crypto-linked activity collides with an already fragile banking system.
The warning draws heavily on findings from a 292-page investigation released last September by the Senate’s Permanent Subcommittee on Investigations.
How Crypto-Era Bank Runs Slipped Past Regulators Until It Was Too Late, Senator Warns
In the opinion piece on Fox News, Senator Richard Blumenthal examined the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank, all of which had received clean audits shortly before collapsing.
The senator noted that those audits masked growing risks tied to fast-moving deposits, opaque exposures, and a business model increasingly influenced by crypto and venture capital flows that arrive quickly and leave even faster.
In the senator’s telling, Silicon Valley Bank’s downfall followed a familiar pattern.
During the boom years of cheap money, the bank attracted massive deposits from tech startups and venture-backed firms, including companies linked to the crypto sector.
When conditions reversed after interest rates rose and major crypto firms like FTX collapsed, confidence evaporated. Panic spread rapidly through digital channels, and withdrawals accelerated at historic speed.
Regulators ultimately stepped in to prevent wider contagion, committing up to $340 billion in emergency support. Even so, more than $54 billion in equity and bond value was wiped out.
The senator has pointed to Signature Bank as a clearer example of crypto-linked risk. Signature had actively courted digital asset firms and built a large base of crypto-related deposits.
After the FTX collapse in late 2022, those deposits flowed out en masse.
Auditors repeatedly reassured the public that risks were under control, only for the bank to be shut down months later.
For the senator, this failure illustrates how crypto’s complexity and lack of transparency can overwhelm traditional oversight before regulators can react.
Notably, concern also extends to stablecoins, which the senator describes as “digital dollars” being marketed as alternatives to bank deposits.
With the stablecoin market valued around $300 billion and projections suggesting it could quadruple by 2030, he warns that losses could be far larger if safeguards are not imposed.
Since the GENIUS Act passed last summer, several major stablecoins have temporarily lost their pegs, erasing hundreds of millions of dollars in value.
How Crypto-Era Bank Runs Slipped Past Regulators Until It Was Too Late
Crypto industry figures strongly dispute that framing, as market commentators and executives argue that blaming crypto for Silicon Valley Bank’s collapse rewrites well-documented facts.
They point to SVB’s core failure as a textbook case of interest rate mismanagement.
The bank invested heavily in long-term U.S. Treasuries when rates were low and failed to hedge that exposure.
When rates rose sharply, losses were locked in with more than 90% of deposits being uninsured and concentrated among a tightly connected tech community, making a run almost inevitable once confidence cracked.
Silvergate Bank, critics note, presents a different case, as its collapse was directly tied to crypto market volatility and the loss of trust after FTX failed.
Deposits fell by 68% in a single quarter, forcing the bank to sell assets at a $718 million loss and ultimately liquidate.
Even there, defenders of crypto argue that concentration risk and poor balance sheet resilience were decisive, with crypto acting as a catalyst rather than the underlying cause.
They also reject the idea that “digital-speed” runs are unique to crypto.
Bank runs have occurred for centuries without smartphones or blockchains. Technology accelerated the process, they say, but did not create the vulnerability.
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