The crypto industry has been under increased regulatory scrutiny in recent months, with the collapse of Signature Bank and Silvergate Capital Corp. only adding to the industry’s woes. However, despite these challenges, a new banking system for crypto companies will emerge, promising a safer and more secure way for investors to transact in cryptocurrencies.
Crypto Banking System Defies Regulatory Crackdown
The aftermath of the downfall of Signature Bank and Silvergate Capital Corp. has led to the gradual growth of a new banking system for crypto companies despite the US’s recent clampdown on the industry. Crypto firms are now opening bank accounts with small regional lenders, with Pennsylvania-based Customers Bancorp Inc., as one of the most preferred options.
Although some Swiss and Asian banks are also beginning to play a more significant role, they remain selective about their crypto clients. Meanwhile, many crypto companies in the UK are turning to payment-service providers to overcome the difficulties in accessing banking services.
According to research, this new banking system for crypto is less advertised, more fragmented, and has less concentration in the United States. Many industry participants, including digital-asset exchanges, are taking to this new process due to the increasing disinterest of top US banks in handling fiat fund transfers or holding fiat deposits for crypto market players.
Many of these US banks are being cautious after the turmoil experienced by the crypto industry last year and the mounting regulatory scrutiny. The collapse of the leading crypto-friendly banks meant crypto firms had to seek credible alternatives.
According to Rich Rosenblum, the president and co-founder of crypto trading firm GSR, there are only a few credible alternatives for crypto firms. Hence, these firms are conducting their due diligence to make informed decisions.
This week the crypto industry experienced further turmoil after the US SEC filed lawsuits against Coinbase Global Inc. and Binance Holdings Ltd. for violating its regulations. However, both firms denied the charges and pledged to defend themselves in court.
Furthermore, John Popeo, a partner at a top independent advisory firm, Gallatin Group, stated that the recent lawsuits had highlighted issues already acknowledged and discussed within the industry. These issues relate to the legal status of some tokens.
Popeo added that these lawsuits could create further difficulties for crypto firms in finding banking partners. These potential partners will conduct thorough due diligence before accepting to do business with these crypto firms.
Crypto Exchanges And The Need For Secure Banking Partnerships
Experts opined that the US SEC’s actions against the top players in the crypto industry would only make it more difficult for crypto players to secure bank partners from the traditional finance ecosystem. J. Austin Campbell, a crypto consultant and an adjunct professor of Columbia Business School, stated that access to banking services for conventional bank services for crypto firms in the US had declined to a level worse than in the pre-2018 era when the digital asset industry was still in its infancy.
The professor explained that banks only wish to open active accounts for these firms for corporate usage without dealing directly with users’ money. However, such skeletal service is insufficient for crypto firms to run their businesses efficiently.
Hence, the development of this new banking system by crypto firms may be more robust and less prone to issues that caused the collapse of the previous crypto-friendly banks. For instance, if one bank decides not to support crypto firms again, there may not be a significant need to restructure the system.
In the US, crypto customers now turn to banks like Customers Bancorp, Cross River Bank, Western Alliance Bancorp, Axos Financial Inc, and FV Bank International Inc. Banks like Standard Chartered Plc, DBS Group Holdings Ltd., and Hong Kong-based ZA Bank Ltd. are the favorites in Asia.
While in Europe and UK, London-based BCB Group, Bank Frick & Co., SEBA Bank AG, Signum Bank AG, and Clear Junction are customer go-to crypto banks.
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