According to crypto insiders, banks are afraid to take cryptocurrency exchanges under their custody because of the potential for compliance headaches. The fear makes building bridges between crypto and traditional finance a prickly affair – full of friction.
For blockchain-based businesses, the difficulties begin at ground zero: opening a bank account.
In a recent report by Bloomberg, Sam Bankman-Fried, CEO of cryptocurrency exchange Alameda Research, says a visit to the local Chase branch isn’t enough to open an account anymore. Cryptocurrency businesses at large are not on a level playing field. Instead, they’re treated more harshly, confronting banks that are skittish about “the risks”.
Although larger banks have backed away from crypto, smaller banks have continued to embrace blockchain-related businesses, a trend that has significantly impacted their bottom line. Silvergate Bank in San Diego, for example, has tapped into the $40 billion in deposits generated by crypto businesses. The small community bank now has a roster of high-profile crypto clients including Coinbase, Kraken, Gemini and bitFlyer.
Silvergate CEO Alan Lane says,
“We’re very collaborative with the regulators. We ask them if they have suggestions, and what we can do better.”
In Hong Kong, crypto exchange Bitfinex found its banking partner last year: HSBC.
Bitfinex is now banking with HSBC through a private account of Global Trading Solutions. Very good fit if you ask me. It's also worth mentioning that all EUR, JPY and GBP deposits are paused but Bitfinex "expects the situation to normalize within a week". Banking issues? pic.twitter.com/1pxQ13NO0m
— Larry Cermak (@lawmaster) October 6, 2018
But many other blockchain-based companies that are located in crypto-friendly jurisdictions, such as Malta, still face a number of concerns. And closed doors.
According to the Times of Malta,
“Sources from company service providers, legal firms and corporate finance companies contacted by the Times of Malta – who asked to remain anonymous to protect their clients’ confidentiality – confirmed that banks were politely declining their business, saying it was outside their ‘risk appetite’.”
Says Mark Lamb, CEO of CoinFlex, a Hong-Kong based crypto derivatives exchange,
“The banking system has never been friendly to crypto, and while maybe that made some sense in the early days, continuing to label all crypto businesses as high-risk is indefensible and protectionist.”
Says Robby Houben, a lawyer and professor at the University of Antwerp, and author of the crypto and blockchain 2018 TAX3 committee study for the European Parliament,
“I have met some really stand-up people in crypto that don’t deserve such a bad reputation and want the sector to be regulated, yet for every one of those, there are plenty of others trying to scam the public, launder money or evade taxes.”[the_ad id="42537"] [the_ad id="42536"]