Crypto Faces a Banking Crisis. For Some, It’s a Conspiracy

A group of Republican senators, led by Tennessee’s Bill Hagerty, wrote a March 9 letter to the bank regulator supporting that interpretation. The statements from regulators have “causing banks to reassess their decision to offer banking services to the crypto sector,” the letter reads. “This coordinated behavior is disturbingly reminiscent of Operation Choke Point.”

“Operation Choke Point 2.0 is very real,” says Caitlin Long, CEO of Custodia, the spurned bank. “Many banks have taken a big step backwards with their crypto activities… and many [crypto] Businesses from small to very large are looking for bank accounts.”

Since January, Custodia has been inundated with requests from crypto companies looking for a banking partner, Long says, but without federal oversight it can only offer a limited range of U.S. dollar services. Custodia is suing the Fed for rejecting its application for membership.

Others are less convinced of the choke point theory. Economist Frances Copolla, who worked in risk management for HSBC and the Royal Bank of Scotland, says she doesn’t believe there has been a “coordinated attack on crypto” but that the failures of Silvergate and Signature are a reflection of their vulnerability operating models. Caleb Franzen, a corporate banking analyst at research firm Cubic Analytics, says talk of underhanded tactics among regulators is “pure speculation.”

But whether accidental or intentional, crypto is facing a banking crisis in the US.

The closure of Silvergate and Signature has prompted crypto companies to urgently seek new banking partners. Circle Internet Financial, whose stablecoin USDC was temporarily unpegged from its peg to the dollar amid alleged exposure to Silvergate and SVB, arranged over the weekend to expand an existing relationship with BNY Mellon. But not everyone is home and dry; Crypto investment firms MaiCapital and Digital Asset Capital Management have started searching for new banking partners abroad, while trading platform LedgerX has been forced to find a new bank for the second time after switching from Silvergate to Signature. Neither company responded to a request for comment.

Because of the value they represent to banks, larger crypto companies will likely be able to keep their existing accounts in the US, Carter says, meaning US residents will continue to have access to crypto exchanges. But smaller companies are “crawling,” he says. The result will likely be that some companies migrate to countries with more benign regulatory regimes; some will struggle to raise venture capital dependent on access to banking; and others don’t start at all, Carter says.

With the fall of Silvergate and Signature, the only two banks offering real-time, every-hour, every-day payments, the 24/7 crypto industry will have to adjust to operating at a different pace. For traders, this means that bets cannot be completed outside of regular banking hours, which is likely to create additional volatility.

Swan Bitcoin’s Klippsten doesn’t believe in the idea that US regulators have launched a coordinated attack on the crypto industry, driven by “a man behind the curtain pulling the strings.” He’s also more optimistic about the prospects of companies “orphaned” by Silvergate and Signature finding new banking partners, saying “banks are usually happy to take your money.”

Klippsten also agrees with regulators’ ambition to fight back against fraud in the crypto sector. But the frustration, he says, is that legitimate crypto businesses will be collateral damage.

“Because crypto is so shady and some of the companies are so poorly managed, the whole category is toxic — on average, it’s a bunch of dog shit,” he says. “So it’s hard to ask a bank with hundreds of thousands of accounts to differentiate between good crypto businesses run by mature adults, [and bad ones]. We must be painted with the same brush.”