Crypto firms complain they’re being shunned by banks

Bloomberg

The gatekeepers of mainstream commerce are keeping their doors shut to cryptocurrency companies. Entrepreneurs in the digital-assets industry from New York to Hong Kong say that even as some attract investment from multibillion-dollar institutions like Singapore’s sovereign wealth fund, they are routinely refused basic banking services by the likes of HSBC Holdings Plc and JPMorgan Chase & Co.
While top-tier banks are getting more crypto-curious—JPMorgan rolled out a prototype digital coin last month—most see the growing number of companies in the industry as they have since day one: ticking regulatory time bombs. Crypto isn’t the only novel industry having a hard time accessing traditional banking to support its development: a federal prohibition on marijuana has kept big US banks out of the cannabis industry too.
“No bank is willing to help them out,” said Robby Houben, a lawyer and professor at the University of Antwerp who co-authored a paper for the European Parliament on financial crime involving cryptocurrencies. “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.”
Digital currencies have attracted outlaws since the first one, Bitcoin, appeared a decade ago because they obscure the identities of parties in a transaction and operate outside the regulated financial system. From Silk Road, online drug bazaar shut down by the FBI in 2013, to Russian intelligence officers indicted for hacking offenses related to the 2016 US presidential campaign, crypto has been associated with illicit activities.
Though legitimate uses have mushroomed in recent years, it’s simpler for banks to maintain a blanket prohibition, said Jerry Brito, executive director of crypto advocacy group Coin Center in Washington.
“The standard answer of `just go to your local Chase branch’ doesn’t work in crypto,’’ said Sam Bankman-Fried, chief executive officer of Alameda Research, a digital-assets trading firm in Berkeley, California. “It’s not illegal for big banks to bank the crypto industry, but it’s a massive compliance headache that they don’t want to put the resources in to solve.’’
“Denying basic banking is madness, impedes sector growth and forces companies to get creative to solve the problem.”
In the meantime, folks like Jesse Powell, CEO of crypto exchange Kraken, are caught in the middle. The boss of one of the oldest Bitcoin exchanges vented on Twitter in January that he “basically had to employ the arts of a money launderer to survive” after JPMorgan Chase and Bank of America Corp. closed the exchange’s payroll account on short notice.
While the largest banks shun crypto, a group of smaller lenders have seized on an underserved market. One, Silvergate Bank in San Diego, said in a November filing for an initial public offering that crypto businesses have as much as $40 billion to deposit. Other banks courting crypto firms include Signature Bank in the US and Bank Frick in Europe.
And some crypto diehards are doing what you’d expect from those who are committed to a completely unregulated financial system. Mark Lamb, Hong Kong-based chief executive officer of newly launched crypto derivatives exchange CoinFLEX, said he pays employees, lawyers and accountants in crypto or in so-called stable coins, such as Tether.
“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,” said Lamb. “I’m washing my hands of them and now avoid banking altogether.”