Crypto's First Class Rails.
As an investor in the crypto industry over the last decade, I have observed that the industry has always been divided into two sets of rails.
First Class Rails
Crypto Native Rails
Having a “safe” bank account was always a competitive advantage, and not having a bank account was always an additional challenge to startups.
Having a bank account has defined anyone in the “First Class rails” bucket. Coinbase, Circle, and dozens of others who were eventually given their first shot through the traditional banking system. The first bank that took a shot on Coinbase was Silicon Valley Bank.
These companies had an important role to fill, they were the gateways for the banks to assess the risk of the crypto industry. They would single handedly build trust in the banks to allow more banks to take on crypto startup risks, or fail, and lose the trust for the industry.
When you look at what Coinbase, Circle and others in this bucket have done over the last decade - it has been an amazing thing to see the amount of education and trust being brought into the industry through this process. Even with massive hiccups from the industry along the way.
However, every founder in the last decade of investing in the crypto category has stories of having their bank account shut down for X,Y,Z reason. Ripio, a crypto gateway from Argentina consistently had multiple bank accounts in order to diversify their risk. Startups shouldn’t have to worry about systemic “Rug pulling” risk from banks. There are a lot of things that kill startups, not having a bank account shouldn’t be one of them.
There’s another category that got so frustrated that they decided to disconnect completely from the banking system. Binance was the first company to do this at scale. The banking industry locked startups out so forcefully that the crypto founders had to find a safe haven somewhere - and more often than not, they decided Bitcoin, Stable Coins, or Ethereum was the way. The ecosystem had gotten so big, that this was an easy possibility. Enough people already owned Bitcoin or Ethereum, that people didn’t have to be onboarded to the banking rails. So these companies would just leave the tokens in the internet, and let other companies like Coinbase deal with the banking system.
Both are important to the adoption of the industry. However, “Crypto Native” industry couldn’t have come first, they have built on the shoulders of giants.
I write this history to give general context to my next thought:
In the last week the crypto industry has suffered a massive blow - Silvergate Bank, Signature Bank, and Silicon Valley Bank all have gone under. These are the 3 most crypto friendly banks in the world. This is both the best thing that could have happened and the worst thing that could have happened to the industry.
First the best:
It’s the best because for a moment, everyone in the entire venture capital industry understood the value of “Sovereign Money,” the importance of controlling your own assets and not having them leased to you in a bank somewhere. This educated hundreds of thousands of people, who may have not realized the importance of that. Bitcoin went up, Ethereum went up. Everyone realized they want more crypto.
Now the Worst:
These banks were the first banks to take a shot on the industry. Building trust with banks has been a Sisyphean task in crypto, and this will not be helpful. After these banks crashed and FTX’s fiasco our industry is going to have an impossible time having startups start. And now with Silicon Valley’s demise this may even creep over to all startups and the fact that banks won’t want to take the risk of startups.
So, from this - Natively crypto companies will thrive in this new environment, and First Class Rails businesses will see increased difficulty. Actually first class won’t see the difficulty, it will just become more difficult to be a “First Class Rail” startup.
Bitcoin was made for such moments.