The United States banking sector is hesitant to do business with crypto firms following the closures of the nation’s most crypto-supportive financial institutions earlier this month.
A collection of industry participants, bank executives, and investors are reporting various instances of banks making crypto partnerships more difficult, from forming lengthy application procedures for such companies to outright abandoning the industry.
Crypto’s Banking Problem
As reported by Bloomberg, crypto firms are desperately looking for new partners after Silvergate Bank, Signature Bank, and Silicon Valley Bank (SVB) fell apart within a week in mid-March.
For instance, Cross River Bank received over 100 new client requests within days of SVB and Signature’s closure. Though not all of those clients were crypto firms, CryptoPotato previously reported that crypto-focused Swiss banks have been receiving a similar uptick in new traffic lately, particularly from former Silvergate clients.
Unfortunately for the industry, Cross River turned down nearly all of those requests. Spokesperson Eden Hoffman told Bloomberg that the company is “only considering companies with existing relationships with Cross River that are blue-chip customers and integral to the fintech ecosystem.”
Some large global banks – including JP Morgan Chase and Bank of New York Mellon – have select exposure to the industry. However, Bitstamp CEO Bobby Zagotta claims they have long onboarding processes that can take up to 6 months. The crypto exchange itself once used SIlvergate and Signature, but is now MVB Financial Corp. and Customers Bancorp, while exploring additional regional partners.
Operation Chokepoint 2.0
While financial authorities have placed no blanket ban on the crypto asset sector, the Federal Reserve, FDIC, and OCC have issued guidance to banks regarding risks to keep in mind when dealing with crypto firms. One included the “unpredictability” of deposit inflows and outflows, which can create instability for a bank overly exposed to the sector in times of industry-wide market panic.
Some suspect that the rapid clampdown on crypto’s banking partners, combined with growing regulatory enforcement actions against major industry firms is part of a wider government conspiracy to drive crypto out of the US. For example, Tom Emmer, a crypto-supportive congressman, has scrutinized the government’s forced closure of Signature Bank as a deliberate anti-crypto attack.
Castle Island Ventures’ general partner Nic Carter has popularized this theory under the name “Operation Chokepoint 2.0.”
“No banks want to put up their hand and say, ‘We are the guy serving the crypto industry,’ because they saw what happened,” he told Bloomberg. “No bank wants to be considered the next Silvergate or Signature.”
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