Chicago Fed, Report: A retrospective on the crypto runs of 2022

“One view of customers’ withdrawals from crypto-asset platforms in 2022 is that market discipline has effectively punished firms that took excessive risks and committed other abuses in attempting to pay high returns to customers. At the same time, market discipline is small solace to the hundreds of thousands, if not millions, of retail users who were deprived of adequate disclosures for certain unregistered securities, have lost money, and who are waiting for the return of whatever can be salvaged of their investments as bankruptcy proceedings conclude. This turmoil has made consumers and investors more aware of the risks of crypto-asset investment opportunities than they may have been in 2021 amid the excitement of an asset class experiencing rapid price appreciation.”

“Most of the financial instability associated with these failures has been confined to the crypto-asset ecosystem. However, the failure of FTX put severe pressure on Silvergate Bank and Signature Bank in late 2022, which both provided an array of banking services targeted at crypto-asset firms; these two banks suffered severe deposit withdrawals and closed or failed in 2023, contributing along with the failure of Silicon Valley Bank to the recent banking turmoil.”