Following the Silvergate blowup, banks step up to serve crypto firms

Crypto CEOs claim that startup, regional banks have welcomed them with open arms.

‍

With the failure of two significant symmetric encryption lenders, Signature Bank and Silvergate Capital Corp., some banks are extending a warm welcome to cryptocurrency businesses that have discovered themselves in need of banking services. SI 25.58% growth; triangle pointing up in green

‍

Industry executives report that regional banks like Customers Bancorp CUBI -2.25%decrease; red down going to point triangle. and Fifth Third Bancorp FITB 3.32%increase; turn yellow pointing triangle., based in West Reading, Pennsylvania, have welcomed cryptocurrency companies as they have rushed to form new bank relationships.

‍

Other cryptocurrency businesses are shifting deposits to smaller, nascent banks that pride themselves on being digital pioneers, like Cross River Bank in New Jersey. Some yet are thinking about moving their banking operations overseas.

‍

The largest banks, like JPMorgan Chase & Co. and Bank of New York Mellon Corp., continue to conduct business with cryptocurrency clients despite being careful about who they work with and what banking services they offer.

‍

A few weeks ago, there was a lot of rumor going about in the cryptocurrency community that Washington was planning to kill cryptocurrency by preventing it from accessing the financial system, a plan some pundits dubbed "Operation Choke Point 2.0." 

‍

While banks have stepped up to fill the void left by Silvergate's closure and Signature's appointment as a receiver with the Federal Deposit Insurance Corp. earlier this month, those anxieties have now partly subsided.

‍

Rich Rosenblum, founder and president of cryptocurrency trading company GSR, noted that other other banks, both offshore and onshore, are utilizing this opportunity.

‍

Applications for banks ready to work with cryptocurrency companies have flooded in the last two weeks, according to bankers and crypto executives. One crypto banker claimed that following the collapse of Signature, he turned on his phone's "do not disturb" mode in order to get some rest. His phone overruled the setting after receiving a large number of texts quickly.

‍

B2C2 Ltd., a cryptocurrency trading company, is requesting 20 bank accounts in various currencies, according to its CEO, Nicola White. According to Ms. White, B2C2 had roughly six applications out a month prior. We definitely just want to widen our range of possibilities, she remarked.

‍

According to bankers and executives in the cryptocurrency industry, the smaller banks that accept cryptocurrency clients have been picky in who they hire, which has prolonged the time it takes to open accounts. The banks are worried about having too much involvement to cryptocurrency because they think it would make them a focus for regulators. 

‍

According to Michael Shaulov, CEO of crypto-infrastructure company Fireblocks Inc., "there is a collection of U.S. banks that really is likely to board some of the crypto enterprises, with a smaller proportion in each bank than previously."

‍

According to those with direct knowledge of the situation, Fireblocks just began banking with Fifth Third. Regarding its own banking arrangements, the firm declined to comment.

‍

According to a Fifth Third representative, the bank doesn't participate in the activities of banking firms that deal in or directly handle cryptocurrency as a matter of corporate policy. We acknowledge the necessity that all businesses, including those that deal in digital assets, have for conventional financial services like payroll, benefits, and accounts payable, he continued.

‍

At a time when the confidence inside the banking system has been rocked by a succession of failures, luring deposits from cryptocurrency companies could help stabilize banks' balance sheets. Yet it's a dangerous gamble. While the Securities and Exchange Commission's relentless pursuit of crypto businesses has frightened bankers who don't want to do business with clients in the agency's sights, bank regulators have expressed concerns about lenders' involvement in cryptocurrency.

‍

In order to settle symmetric encryption trades outside of regular banking hours, Silvergate and Signature developed payment networks that allowed customers to transfer dollars amongst each other on a 24/7 basis. A snag in the works was the loss of Silvergate's SEN network and the potential loss of Signature's Signet network.

‍

According to others with knowledge of the situation, cryptocurrency companies are now trying to relocate to regional banks that provide or are creating networks similar to these, such as Customers the Phoenix-based Western Alliance Bancorp.

‍

According to Bob Rutherford, the vice president of operations at FalconX, a digital-assets premier brokerage that serves institutions, "losing SEN and Signet is operationally problematic, but there are a lot other regionals that are also building out similar networks and services."

‍

Among the bigger banks, JPMorgan still offers financial services to companies that deal in cryptocurrencies, like the cryptocurrency exchange Coinbase Global Inc. Circle Internet Finance Ltd.'s cash and Treasury securities are held with BNY Mellon.

‍

According to business experts, other cryptocurrency companies are interested in offshore banks including the Bahamas' Capital Union Bank and Puerto Rico's FV Bank.

‍

According to Miles Paschini, CEO of FV Bank, "the collapse of Signature and Silvergate has resulted in an increase in queries from potential clients." "As a regulated bank plus digital asset custodian, we can provide access to an integrated solution to companies that fulfill our rigorous compliance and risk standards."

‍

Those with knowledge of the situation indicated that executives from Coinbase recently discussed the possibility of establishing a cryptocurrency credit union to boost the industry's access to the financial system. A spokesperson for Coinbase stated that she would not address "rumor or speculation." 

‍

Cross River was highlighted by certain CEOs as a growing force in cryptocurrency banking. Following the closure of Signature by regulators on March 12, Circle announced that it has partnered with the privately owned New Jersey bank to automate settlement of its USDC stablecoin. Cross River therefore took the place of Signet as an appealing alternative for businesses employing USDC.

‍

According to a Cross River spokeswoman, the bank is thinking about only taking deposits from "blue-chip customers that are crucial to the fintech ecosystem" and businesses with which it already has links.

‍

Some financial institutions have welcomed new bitcoin clients, such Florida's Surety Bank, which has $220 million in assets and a variety of cryptocurrency ATM service providers among its clients. 5% of the business's revenue comes from cryptocurrency startups. According to Surety CEO Ryan James, it's critical for cryptocurrency companies to have access to banks.

‍

You want it to be part of the American financial system and be able to oversee it, he said. You don't want it to disappear, she said.