Crypto Related Business Continue to Experience Difficulty Acquiring Banking Services5th April 2019
Crypto-related businesses continue to emerge across the globe, with entrepreneurs seeking to capitalize on the enormous development of the blockchain space. Despite their potential for success, access to banking and professional financial services remains one of the greatest challenges faced by these upstart companies. Most banks continue to be wary of working with cryptocurrency startups, despite the significant profit potential in doing so. Likewise, governments continue to struggle with how to regulate them. Nevertheless, pressure is increasing to resolve this problem, as this growing industry is becoming too significant to be ignored.
The decline in market values over the past several months has not slowed interest in the overall crypto economy. Thus, the expanding number of businesses that work in the blockchain space has created significant opportunity for banks willing to provide services. One pro-crypto bank is San Diego-based Silvergate Bank, which openly recruits blockchain related businesses, and presently has over five hundred as clients. Nevertheless, very few banks are following this example. Notably, large, multinational banks have an almost complete self-imposed ban on crypto companies.
There are a range of explanations for the widespread shunning of crypto businesses. One of which is the long-held (and provably false) myth of cryptocurrency’s association with criminal activity such as money laundering and drug trafficking. Also, many in the traditional banking space may consider crypto businesses too risky due to the volatility of the overall sector. Perhaps the most significant factor is the difficulty navigating complex compliance regulations such as know-your-customer laws, or tracking income from foreign sources.
Not surprisingly, many crypto advocates assert that big banks refuse to work with crypto companies because of their own aversion to blockchain technology. It has long be held that banks see blockchain assets as threats to their business models, and thus have little incentive to work with institutions that promote crypto’s growth. Perhaps the best known example of such a bank is J.P. Morgan Chase, whose CEO Jamie Dimon once threatened to fire any employee known to own Bitcoin.
For their part, governments across the globe are slowly addressing the need to establish proper regulations for crypto businesses, and a handful are now actively encouraging banks to embrace them. Switzerland, for example, is establishing rules for crypto governance, and Swiss banks are rapidly moving into the sector. Bahrain and Gibraltar are also moving in the direction of crypto regulation, no doubt in an attempt to court crypto activity within their borders. Malta has also been known to encourage crypto activity, with Binance being its most notable resident, yet recent reports have emerged of Maltese banks refusing to open accounts for crypto companies.
If banks need an incentive to embrace crypto businesses, perhaps the greatest is profit potential. There is no question that the few banks that have embraced crypto have enjoyed remarkable returns. Silvergate, for example, held $1.7 billion in deposits at the end of last year, which is an increase of 180 percent from 2017. So profitable, in fact, has Silvergate’s move into cryptocurrency been that it is planning an initial public offering. Some of the bank’s clients include Kraken, Coinbase, and BIttrex as well as a number of crypto-based investors.
Although Blockchain adoption remains in its infancy, there is no little doubt that cryptocurrency represents a new, permanent asset class. Banks that choose to ignore this fact do so at their own peril. There is thus little doubt that, as crypto moves into the mainstream, they will eventually come to embrace businesses that operate in the crypto space. For now, however, they remain largely unwilling to recognize the need to do so.
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