Crypto Companies Are Struggling To Find Banking Partners

Crypto Companies Are Struggling To Find Banking Partners: Report
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Following the collapse of three crypto-friendly banks in the United States, last month, cryptocurrency outfits have been struggling to find banking partners triggering a state of panic among crypto investors, founders, and customers.

According to a new Reuters report, a grim predicament has dawned upon the digital assets sector concerning the well-being of the industry. This comes shortly after US regulators shuttered Silvergate Bank, Silicon Valley Bank, and Signature Bank. In the wake of the biggest banking collapse since the 2008 financial crisis, several founders and employees in the world of decentralized digital currencies were left feeling clueless about their future.

Cascading Effects Of The Banking Crisis On Crypto

Numerous companies were affected by these fallouts including high-profile firms like Coinbase, Paxos and, Circle among others. With three banks shuttering in a matter of days, the lack of access to funds was a huge concern that created panic among founders. Multiple founders from the industry said that they expect a pause in funding. Other industry insiders anticipated funding delays and cost-cutting measures.

As per the report, this is a significant event that will have a long-term impact on cryptocurrencies and Web3 which has already been struggling due to macroeconomic factors, the implosion of FTX and Terra/Luna, and tightening regulations.

Given the current predicament, U.S. regulators have expressed doubt about the safety and soundness of bank business models that are highly focused on crypto clients. Authorities have also told banks to be alert for liquidity risks coming from crypto-related deposits.

Cascading Effects Of The Banking Crisis On Crypto

Marcus Foster, head of crypto policy at Coadec highlighted that worried founders and employees have started to panic with questions about liquidity crunch, potential layoffs, and cost-cutting measures. He said,

“Crypto and Web3 start-ups are telling us they simply cannot get a business bank account.”

Crypto Companies Tap Smaller Financial Institutions

This has left digital asset companies with little choice but to seek out smaller financial institutions, some in remote corners of the world. A number of smaller financial institutions such as FV Bank, a U.S.-licensed fintech-focused bank in Puerto Rico, Bank Frick In Liechtenstein, and ZA Bank in Hong Kong among many others have witnessed a significant uptick in account opening requests from crypto funds or those involved in crypto venture capital.

However, in the wake of this banking fiasco, multiple top banks have specified they are currently turning most potential crypto-related customers away, while others said they are only working with top-tier firms. Banking giants including JPMorgan Chase are not onboarding any clients that are primarily crypto businesses anywhere in the world.

Large Banks Are Turning Crypo Firms Away

Furthermore, a spokesperson for ING said the bank does not “target or focus actively on crypto firms” so its exposure is “very limited.” Ricardo Mico, the U.S. CEO of Banxa, a payment and compliance infrastructure provider for crypto explained,

“There’s certainly a concern about a lack of banking partners available in the market now, notably for the smaller and less-proven ventures”

A Learning Lesson

It seems more and more crypto companies are focusing on conserving cash and cutting down expenses to survive the ongoing banking debacle. While normalcy is returning, the sector is hardly out of the woods yet. On a positive note, the recent events have also boosted investor confidence in crypto from the monopolistic traditional financial ecosystem.

After an initial price drop, Bitcoin (BTC), and Ethereum (ETH) along with other cryptocurrencies gained momentum, bringing back the focus to decentralization. For instance, Swan Bitcoin, a financial services firm that helps people invest in Bitcoin (BTC), experienced a wave of new customers looking to buy the digital coin as an alternative to keeping money at the bank.



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