Following the collapse of three crypto-friendly lenders in the U.S. last month, crypto firms are urgently seeking banking partners, with many turning to smaller financial institutions. U.S. regulators have voiced concerns about the safety of bank business models centered on crypto clients after Silvergate Capital Corp, Signature Bank, and Silicon Valley Bank's implosion.
Regulators have also advised banks to be vigilant about liquidity risks from crypto-related deposits, which could lead to rapid outflows if customers attempt to redeem their crypto assets for real money.
"Crypto and Web3 start-ups are telling us they simply cannot get a business bank account," said Marcus Foster, head of crypto policy at Coadec, a UK start-up representative body. He added that the situation had recently worsened.
Smaller, remote financial institutions are now seeing increased interest from digital asset companies. FV Bank in Puerto Rico and Bank Frick in Liechtenstein both reported a significant uptick in account opening requests, primarily from Europe, Singapore, and Australia.
Nikki Johnstone, a partner at the Allen and Overy law firm in London, said that the "concentration risk" from having fewer crypto banking options is the "biggest challenge."
Cryptocurrency companies require access to banks for customer deposits and day-to-day operations. Despite crypto's aim to replace banks, Paolo Ardoino, the chief technology officer of Tether, acknowledged, "We are not there yet, and I don't think we will be there ever."
Major banks are mostly turning away potential crypto-related customers or only working with top-tier firms. JPMorgan Chase, Bank of New York Mellon, and ING all maintain cautious stances toward crypto businesses.
Allen and Overy's Johnstone explained that banks are often wary due to the heightened money-laundering risk in the crypto sector and the lack of strong crypto regulation. For smaller crypto start-ups, finding a banking partner is becoming increasingly challenging, according to Ricardo Mico, the U.S. CEO of Banxa, a crypto payment and compliance infrastructure provider.
