Banks stop working with crypto exchanges: what’s next?
Crypto-enthusiasts’ philosophy suggests independence from the fiat currency system. Their dreams are coming true: under government pressure, conventional banks are refusing to cooperate with crypto-exchanges.
Crypto's appetite for fiat is above our expectations
The recent pause in USD deposits and withdrawals from the Binance exchange was a wake-up call. Its CEO Changpeng “CZ” Zhao emphasized that the case is not an isolated one. “Some banks are ceasing to support cryptocurrency,” he tweeted. Previously, US-based Signature Bank had refused to process Binance users' transactions under $100K.
Searching for partner banks has never been an easy task for most cryptocurrency projects. As the government informs us about the risks of working with crypto-exchanges on a daily basis, it is becoming increasingly difficult to locate crypto-loyal bankers. In the US, Metropolitan Bank, Silvergate Capital and Signature Bank used to be major crypto-sector partners. Nowadays, these companies are scaling their cryptocurrency projects down considerably – or even leaving the industry altogether.
What happened to Silvergate, for instance? Well, they had developed special deposit programmes for cryptocurrency companies. When FTX collapsed, those crypto-businessmen flocked towards Silvergate to withdraw their savings. Consequently, Silvergate's deposits dropped by $8.1bn, or 70%, a calamity for any financial institution.
Things are no better in Europe either. Major banks in the UK, for example, have refused to work with companies such as Binance and Coinbase. However, it's not so much about skepticism towards crypto-assets. Conventional financial systems are heavily regulated. Regulators' aim is to minimize the possibility that a customer will suffer detriment, i.e. lose their money. If a consumer suffers a loss, the bank may be fined millions of dollars and convicted of unfair market practices. Recall the scandalous litigation that has accompanied crypto-bankruptcies in recent months. The conservative banking sector only has to take a glance to realize that the risks clearly outweigh the possible benefits.
What comes next?
It is unlikely that cryptocurrency platforms will be completely cut off from access to dollar transfers anytime soon. Yet the crypto industry's tensions over cooperation with traditional financial institutions will obviously persist. First and foremost, the reason lies in the regulators' attitude. They seem to be determined to stifle the industry in any way they can.
It is getting tougher and riskier to exchange crypto for fiat (a vital need for crypto-customers, whether they want to admit it or not). Things will only get worse as the crypto-contagion continues to spread. Crypto is becoming as useful as Monopoly money.
According to ex-SEC chief and crypto-hater John Reed Stark.
On the other hand, traditional banking institutions are developing their own crypto projects, while turning away from crypto market players. Finally, there is a third stakeholder: Governments, which are obviously relying on the introduction of central banks' digital currencies. We'll see who comes out on top in the near future.
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