Banks and crypto: behind the hype

Banks and crypto: behind the hype

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Last week Portuguese banks closed the accounts of a licensed crypto exchange. This move, albeit surprising in a country positioning itself as “crypto-friendly”, is all but too common in a long and crooked story of banks-and-crypto relationships.

Crypto does not need banks. However, most crypto businesses do, as well as crypto beginners, for whom the most obvious way to get crypto is to buy it with fiat money.

This puts a lot of power in the hands of banks, and as it is often the case with centralized authorities, they tend to misuse it.

The attitude that most banks adopted in 2016-2018 was a categorical denial of any utility and/or value of cryptoassets. Be it a bold statement thrown by a bank’s CEO (“Bitcoin is a fraud” by JP Morgan in 2017), or a detailed twisting of economic notions presented as a “study” (BNP Paribas methodically explaining why “Bitcoin is doomed” in the beginning of 2021).

However, even the most short-sighted bankers are starting to realize that crypto isn’t going nowhere and continuing smearing it will only ridicule them. What’s more, speaking about and engaging in crypto-related projects can give them a modern edge, showing that they can still be relevant.

Since this eye-opening realization, most banks have taken one of the three roads:

–          using crypto for PR, while denying services to crypto users and businesses,

–          reserving crypto only for the wealthiest clients, while denying services to regular customers,

–          genuinely including crypto into their worldview.

We have compiled some of the most well-known cases of these strategies.

Crypto hype surfers

Unlike crypto, banks can choose which accounts they wish to serve, and a vague AML-inspired excuse can serve as a universal discrimination tool. Foreigners and people in irregular life situations know it all too well, and for the last couple of years they have been joined by people and businesses related to crypto.

Spanish-born multinational bank Santander has been surfing on the crypto hype for a long time. In November 2021, it was even preparing to launch a Bitcoin ETF (no news ever since), and this summer it organized a competition to seek out blockchain startups, with the reward ceremony to take place in the metaverse. Most recently, Santander Brazil announced its plans to offer crypto trading feature to its clients.

Despite all this enthusiasm, in the beginning of the year Santander denied its services to two Portuguese crypto exchanges Mind the Coin and Luso and closed the account of CriptoLoja last week. The fact that these exchanges hold a special license from the Portuguese Central Bank did not change the narrative: the accounts were closed due to “anti-money laundering considerations.”

The French Société Générale is widely perceived as almost “crypto-friendly”, being one of the few French banks that did not try to smear crypto all these years, and instead has been developing crypto projects. It issued a €100 million covered bond as Ethereum tokens as early as 2019, and tried to make a deal with MakerDAO in 2021.

However, when it comes to servicing its clients, Société Générale is adopting a whole different attitude. D.Center has a first-hand knowledge of a number of personal and business accounts related to crypto that were forcibly closed this year. Moreover, this was done in a way that totally bypassed the bank agencies’ Directors, left frustrated after an instruction “from the top” forced them to cut off their (totally compliant) clients.

Some banks that have been unequivocally hostile to crypto now start realizing they are missing the hype and choose to dip their toes in the space just enough to make a marketing move. Only last year HSBC went as far as banning their customers from buying stocks of Microstrategy – a software firm that holds a significant amount of Bitcoin on its balance sheet. This year the bank made the news by “entering the metaverse” – buying a plot in The Sandbox to “engage with e-sports”. However, when it comes to important things, HSBC is reportedly continuing blocking transfers to exchanges and closing crypto-related accounts.

A very closed club

Other banks push the hypocrisy in the other sense: while continuing defaming crypto, they invest into crypto-related ventures and propose crypto services to their wealthiest clients.

Thus, the UK’s Barclays (CIO stating that crypto is supported only by “magical thinking” and Bitcoin is more of a “cult”) is taking a stake in Copper, a specialist in crypto custody and brokerage. BNP Paribas (“Bitcoin is doomed”) has been allegedly investing in Metaco, a Swiss crypto custody firm.

Such investments are not random: by associating with a custody provider, the banks will be able to offer their institutional and high-net worth clients crypto services, for which the demand has been rising spectacularly. This will allow them to continue making money with their richest clients, while still discriminating all the others: both Barclays and BNP are known for blocking wires to crypto exchanges.

The American Wells Fargo falls into the same category: the bank that until 2020 was explicitly banning clients from sending money to crypto exchanges launched a Bitcoin Fund in 2021, allowing high-net worth customers to access BTC directly through their private banking accounts. However, they are still being reported for blocking ordinary clients’ transfers to crypto exchanges.

Crypto redemption?

US BancorpBank of America, and JP Morgan Chase used to be crypto hostile until around 2019, but the American practical sense must have prevailed over the TradFi’s conservatism.

Since then, US Bank launched its crypto custody services, JP Morgan Chase gave its wealth management clients access to six crypto funds and created JPM Coin, a currency made to facilitate international payments, while BoA regularly releases comprehensible pro-crypto reports and openly states its willingness to start offering retail crypto services (an intention hindered by the regulators at the moment). So far, it also looks like these banks play fair and do not show prejudice to crypto-related accounts and transfers.

Some neo-banks are starting to realize the importance of fair play too.

UK-based Revolut, which made its name by promoting its “crypto-friendliness” and allowing to buy and hold several cryptoassets, had – quite hypocritically –  denied fiat transfers to exchanges for a long time. This seems to be changing now, however the bank is yet to figure out a way to allow its clients transfer their crypto outside of the platform.

French neo-banking unicorn Qonto, while promoting its views on freedom and the new era of banking, had been closing accounts related to crypto (this is a first-hand knowledge ?), citing its terms and conditions that were expressly banning it from touching anything crypto-related. This changed in June 2022, when the partnership with Coinhouse, a Parisian crypto broker and exchange, forced it to reconsider its crypto policy.

While the haste with which the banks are trying to catch up with crypto is impressive, most of them spend way too many efforts on secondary activities, while completely ignoring their first and foremost mission – to safeguard their clients’ money and to send it where the clients tell them to. In spite of all evidence showing that crypto is a way more AML-conscious type of money than fiat, and stringent reporting obligations crypto users and companies comply with, most banks are still choosing to discriminate crypto, pushing their clients away in search of fairer banks.

What’s encouraging though, is that these clients often do find a way out, as smaller banks take the crypto opportunity to stand out. In France – a country basically divided among the major 5 banking groups – a small family bank Delubac & Cie registered itself as a crypto service provider this spring. Banks in Luxembourg, Switzerland and Germany often offer domiciliation to the unbanked crypto businesses from elsewhere in Europe.

If the big banking groups do nothing real, they will continue losing their market share. Frankly speaking though, this won’t be bad at all ?