While big banks are trash talking and shunning Bitcoin, smaller banks are quietly filling the gap and fueling the rise of cryptocurrency.
Silvergate Bank, located in San Diego, California is a prime example. The bank’s assets shot up last year, rising from $978 million $1.9 Billion – thanks in large part to cryptocurrency-related business. As the Wall Street Journal reports, the new business has manifested in a number of ways. Cryptocurrency exchanges, for example, need a place to store the money they’re making. Crypto companies also rely on banks for everyday expenses like paying the rent. And in the case of Silvergate, cryptocurrency-related hedge funds and institutional investors are also driving significant business.
“Silvergate says it has also lured hedge funds, family offices and other institutional investors that want to invest in crypto but can’t get their primary bank, such as Bank of America Corp. or JPMorgan Chase & Co., to execute those transactions,” reports the Journal’s Christina Rexrode.
Chief Executive Alan Lane says Silvergate now offers its services to 250 cryptocurrency companies. Big banks such as Bank of America, JP Morgan Chase, Citigroup, Wells Fargo, Citibank, Capital One, Discover, TD Bank and PNC Bank have all issued restrictions or outright bans on cryptocurrency transactions.
“At what point as a banker do you pull your head out of the sand?” says Lane. “Every banker should be learning about the technology.”
And Silvergate is just one of many banks joining the crypto craze. New York’s Metropolitan Bank Holding Corp. and New Jersey’s Cross River Bank are making similar moves.
The Austin, Texas-based Unchained Capital provides services to Bitcoin miners who need a place to store their capital. It offers cash loans to borrowers in 28 states, including Texas and New York, who post Bitcoin as collateral. According to their website, they aim to turn around loan requests within 24 hours. Loans are secured by setting floors for Bitcoin’s price. During a bear market, lower price action could trigger the need for more collateral.
Bankline bills itself as “the only Bitcoin-friendly banking solution which provides reliable banking procurement and armored cash logistics services support for the Bitcoin ATM and virtual currency industries.” Bankline offers a portfolio of depository institutions willing to serve compliant, well-capitalized Bitcoin ATM and virtual currency companies with non-interest, fee intensive banking services.
Despite the business opportunities, banking Bitcoin is still considered exotic and dicey. To keep their business practices above board and Bitcoin banking customers compliant, these smaller lenders are taking extra steps to know their customers, denying clients who don’t pass muster and keeping bank regulators informed of their every move.