The daisy chain of collapses the crypto industry has experienced has instilled a loss of confidence in the space and created many fewer options for crypto investors and businesses.
First came the implosions of several exchanges — notably FTX, Celsius and Voyager. Then came the collapse of Silicon Valley Bank — and the subsequent measures regulators took to avoid more damage. Then followed the closings of crypto-friendly Signature Bank, because of a “similar systemic risk” and of industry heavyweight and crypto-friendly bank Silvergate, which announced on March 8 that it was winding down operations and liquidating.
At the time, many in the space saw Signature as the last resort for crypto companies to be able to have ties to traditional financial institutions, and people believed then that the bank most likely would take over as the go-to bank for the digital asset industry. The closure of Signature prompted many to question regulators’ motives in shutting down one of the latest financial bastions of crypto-friendliness.
At the time, Danny Oyekan, founder and CEO of digital investment firm Dan Holdings and digital asset exchange Blockfinex, said this made it clear that there was an attempted regulatory crackdown to stifle the digital asset industry in the United States.
“The move against Signature adds to the suspicion that authorities in the United States are using every excuse they can to pressure the digital asset industry, ” he said.
This series of events has left few providers in the field — and both crypto investors and digital asset projects have been left struggling to find new banking partners.
Separate Crypto Banking?
For some this has reignited the debate about whether crypto banking should be separated from standard banking, or whether it should be integrated into the existing financial system.
As Bloomberg reported, one bank has emerged as the new leader in the field: Pennsylvania-based Customers Bancorp, which “partners with hundreds of digital-asset firms, including major exchanges, market makers and stablecoin issuers” and has “attracted new clients after crypto-friendly lenders Silvergate Capital Corp. and Signature Bank collapsed.”
While Piper Sandler analyst Frank Schiraldi told Bloomberg that Customers “really seems to be the last man standing,” the bank is proceeding with caution, downplaying its connections to the crypto industry. It also has limited deposits on its Customers Bank Instant Token real-time payments platform, which caters to crypto clients, to no more than 15% of its total, according to Bloomberg.
“Banks are coming under some pressure to block access to digital assets for both retail and institutional investors,” said Anthony Georgiades, a general partner at Innovating Capital. “We saw this play out in recent months with the so-called Operation Chokepoint 2.0 and what appears to have been a politically motivated attempt to cut crypto off from traditional financial services. I think [it] isn’t as intense as it had been, but clearly there are reports of people who’ve been essentially de-banked because of their transactions with crypto-focused entities, such as exchanges.”
The so-called Operation Chokepoint 2.0 — a term coined by Nic Carter, partner at Castle Island Ventures — is an attempt by the U.S. government to use the banking sector “to organize a sophisticated, widespread crackdown against the crypto industry,” Carter said in a blog post.
Crypto Investing Options
While numerous people and ventures involved in crypto have experienced serious issues with banks recently, some experts believe it’s important to step back.
“What’s happening more broadly with crypto — and especially decentralized finance (DeFi) — is the creation of an alternative and better financial system that is gradually pulling more and more value out of the traditional system,” said Brent Xu, CEO and co-founder of Umee. “As more value starts going from the traditional economy into the crypto economy, of course a number incumbents will seek to stop or at least slow this transition. This is to be expected.”
According to Xu, while in the long term the idea is for people to not have to rely on traditional banks to take out loans or to get yield on some sort of crypto-financial products, for the time being there are certainly a few alternatives to engage with crypto if your bank blocks you.
So what are the options left?
Use a Bitcoin ATM
You can withdraw cash from your bank, go to a Bitcoin ATM and put cash in for BTC, said Christopher Alexander, chief analytics officer of Pioneer Development Group.
“There are almost 70,000 BTC ATMs in the U.S..” he said. “There are fees involved, but if your bank is doing a poor job supporting crypto, it is an option.”
Exchanges and Platforms
For now, one option is to use Robinhood as an alternative to your bank, Georgiades said.
“Just deposit money and then buy whatever crypto asset you want from that platform,” he said. “But, of course, the options on Robinhood are relatively limited.”
Go Old School
If banks are instructed to block all transactions with the crypto economy, then there’s not much that can be done. Even if some banks block such access, it can create major headaches, Georgiades said.
“That said, there are still ways to transact with the crypto economy if your bank blocks you,” he said. “The oldest method — the method used by old-school Bitcoiners — is peer-to-peer transactions using cash, for example. In the old days, Bitcoiners would meet up in parking lots and exchange BTC for cash with each other, directly, with no exchange involved. That’s certainly one workaround, albeit a cumbersome one.”
Bitcoin Spot ETFs
This option has a longer time horizon, as no exchange traded funds have been approved by the Securities and Exchange Commission so far. So-called Bitcoin Spot ETFs remain the Holy Grail for many crypto aficionados, and a fresh cohort of firms recently filed applications for such products — notably industry heavyweight BlackRock in June.
The most tax-advantaged way to buy and sell crypto is with your IRA account, said Eric Satz, founder and CEO of Alto.
With some of these products — such as Alto’s CryptoIRA — investors can trade crypto tax free and tax deferred, place market and limit orders, roll over and transfer funds from existing retirement accounts and invest in up to 200 cryptocurrencies, he said.
“Additionally, unlike when you trade crypto in a taxable account,” Satz said, “doing so within an IRA allows you to avoid the tedious tax reporting process required each year.”
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