long to figure out the opportunity for a
small community bank to significantly
grow its deposit base by servicing a niche
nobody else appeared interested in.
Other financial service providers
that aren’t afraid to hang their crypto-
friendly credentials on their door include
Liechtenstein’s Bank Frick, a private,
family-run institution that was one of
the first banks to offer trading and cus-
todian services for Bitcoin and Bitcoin
Cash; and New York’s Metropolitan
Commercial Bank, where digital cur-
rency customers made up 4.2% of the
deposit base as of the end of 2020’s
first quarter. What is needed, however,
is more banks that are willing to offer
cryptocurrency firms transaction-bank-
ing services, says Casellini.
“It’s very difficult for a private bank
to understand transaction banking,” he
contends.JPMORGAN STEPS IN
An indication that traditional transac-
tion banks could be changing their tune
toward cryptocurrency came in May,
when The Wall Street Journal reported
that JPMorgan Chase had extended
banking services to two of the biggest
cryptocurrency exchanges in the US,
Coinbase and Gemini. No further details
were forthcoming as to why the bank,
whose CEO Jamie Dimon once referred
to bitcoin as a “scam,” suddenly decided
to work with cryptocurrency exchanges.
However, BitAML’s Ciccolo says Gemini
and Coinbase are large, well-established
players with a strong compliance ethos
and staying power.
Nobody wants to be the first to do
anything, says Ciccolo. But with the
increased focus on digital innovation
throughout the financial sector, banks
are under pressure not to miss the boat.
“It is an opportunity to have interac-
tion with some of the biggest and most
influential players in the crypto space,”
says Ciccolo. Those players that now
have had the opportunity to learn and
improve their game as a result of multiple
regulatory examinations at federal and
state levels. “The benefit of having theseexaminations is that it gives the exchanges
a degree of validity.”
In a further boost for the nascent
cryptocurrency banking business, the US
Office of the Comptroller of the Currency
announced in July that all nationally char-
tered banks were permitted to provide
custody services for cryptocurrencies.
“This announcement signifies a real
acceleration in the embrace of the digital
asset class and the value of digital currency
solutions,” commented Robert Cooper,
CEO of Digivault, which provides digi-
tal asset storage. “Not only does this rep-
resent a seismic development for crypto
holders in the US, but it echoes a broader
trend regarding the acceptance of digital
assets amongst global regulators.”Don’t expect the floodgates to open
anytime soon as other banks rush to fol-
low in JPMorgan’s footsteps, however.
Most of the global transaction banks we
contacted didn’t respond to a request
for comment about banking services for
cryptocurrency firms. Bank of America
issued the following statement: “Bank
of America Corporation does not lend
against cryptocurrencies, and we do not
bank companies whose primary business
is cryptocurrency or the facilitation of
cryptocurrency trading and investment.”
“Bitcoin is a currency with a check-
ered history,” says Ziglu’s Hipperson.
“Many banks still believe it’s not worth
getting involved in crypto because of the
potential risk to their reputations and
the costs associated with anti-money
laundering [AML]. In the last five years,
substantial fines have been levied on
financial institutions because of prob-
lems with AML.”
Just how difficult is it for a conven-
tional financial institution to bank cryp-
tocurrency firms? Are they likely to find
themselves in regulatory hot water if
they dip their toes in the much-maligned
cryptocurrency industry? Lane says it
took Silvergate several months to under-
stand what the compliance requirements
were under the Bank Secrecy Act and
other AML regulations. The results were
heartening.
“We built a compliance program to
address this specific client segment,” he
says. “Regulators internationally are very
interested in this. They did not try to dis-
courage us.”
Whether mainstream banks get on
board or not, bitcoin’s price, stablecoins
(pegged to fiat currencies), and central
bank-issued digital currencies are attract-
ing interest. Lane believes more banks
will therefore start offering services for
cryptocurrency firms. And if they don’t,
fintechs are likely to step in as another
way to compete with traditional banks.
“Crypto is going mainstream,” says
Hipperson, “but banks are always a little
bit behind. They have to strike a balance
between assessing and managing risk and
taking zero risk.” ■44CORPORATE TREASURY SUPPLEMENT 2020 |^ CRYPTOCURRENCY
Mauro Casellini, Bitcoin Suisse
Liechtenstein: “Banks don’t make a lot of
money out of Bitcoin, and they don’t
want to take on the risk.”Joe Ciccolo, BitAML: “A lot of banks
haven’t taken the time to learn about
crypto; they have been dismissive.”