As Traditional Banks Step Back, New Players Fill Gap in Crypto Banking

With traditional banks becoming more cautious about servicing the cryptocurrency industry, smaller regional banks and alternative payment service providers are stepping up to fill the gap. 

In the US, Customers Bancorp, a Pennsylvania-based lender, has become a popular choice, having launched a real-time payment platform to support the settlement of US dollar transfers underlying cryptocurrency transactions, according to a new list of crypto-friendly banks compiled by Bloomberg News.

Other US lenders that have provided banking services to some cryptocurrency companies include Cross River Bank, Western Alliance Bancorp, and Axos Financial. 

The change in the banking landscape came after the collapse of some crypto-friendly banks led to increased scrutiny of banks providing services to crypto companies.

As reported, Silvergate Bank announced its liquidation on March 8 after struggling for several months in the wake of the collapse of FTX. 

Just two days after the collapse of Silvergate, Silicon Vally Bank, one of the most popular lenders to Silicon Valley tech and growth startups, suffered from a bank run. 

And on March 12, federal regulators shut Signature Bank down over fears of continued contagion. Regulators hoped that the closure of Signature Bank would help contain the panic. 

The collapse of Silvergate and Signature Bank prompted a scramble among cryptocurrency firms to find other banking alternatives. 

This has led to a more fragmented and global banking landscape, and a banking system that could be more resilient should any of the banks that are currently supporting the cryptocurrency companies stop doing so. 

“Now it’s more of a handful of names, where you have to go and do your own due diligence because they are not as well-known, at least for the crypto community,” Rich Rosenblum, president and co-founder of crypto trading firm GSR, told Bloomberg. 

Crypto-Friendly Banks in Other Jurisdictions

In Asia, Standard Chartered provides banking services to a select group of digital asset service providers in Singapore, Hong Kong, and the UAE, while DBS Group also offers deposit accounts to regulated digital asset and blockchain firms. 

Meanwhile, in Hong Kong, ZA Bank plans to offer token-to-fiat currency conversions over licensed exchanges, as well as provide account services to the digital sector. 

In Europe, Liechtenstein-based Bank Frick & Co. offers banking services, as does Swiss firm SEBA Bank and Sygnum Bank, which operates across Switzerland and Singapore.

The change in banking access follows the crackdown on the cryptocurrency market by regulatory bodies like the Securities and Exchange Commission (SEC) in the US, which has recently filed lawsuits against both Binance, the world’s largest cryptocurrency exchange, and Coinbase, the largest US-based cryptocurrency.

Banking access for cryptocurrency firms has become worse than in the pre-2018 era, when digital assets were still a nascent industry, according to J. Austin Campbell, an adjunct professor at Columbia Business School who consults for cryptocurrency firms. 

Banks want to open operational accounts for corporate use without touching users’ money, “but that’s not enough to run the business,” he said.

Despite the challenges, a new crypto banking system is slowly taking shape, and one advantage is that the use of multiple banking-service providers could make the system more robust. 

Although banking is not as smooth as it was a year ago, if one of the banks stops serving crypto firms, the entire system would not need to be reorganized, Rosenblum added.