Cryptocurrency firms are increasingly looking to become banks to gain credibility and expand their businesses.
According to a Reuters report on 18 March, legal experts say there has been a rise in applications from crypto firms seeking bank charters. However, getting these licences has traditionally been slow, with strict approval processes in place.
Alexandra Steinberg Barrage, who is a partner at Troutman Pepper Locke, confirmed this growing interest. “We have seen a lot more interest. We are working on several applications now”, she told Reuters.
However, despite the enthusiasm, she noted that firms are being “cautiously optimistic” as they wait to see how new banking regulators will handle these applications.
Becoming a national bank could provide major benefits for crypto companies. It would allow them to lower borrowing costs by accepting customer deposits, which could provide a stable source of funding.
Additionally, having a banking licence would make these firms seem more legitimate and trustworthy to both regulators and customers.
Carleton Goss, a partner at law firm Hunton Andrews Kurth, explained, “It makes sense for them to get ahead of the curve and gain credibility and capital at a lower cost by applying for a charter”.
However, obtaining a banking licence is not easy. The report highlighted that in 2023, only four bank charters were approved by US regulators.
Between 2010 and 2023, the average number of approvals per year was just five, compared to 144 per year between 2000 and 2007.
This suggests that crypto firms looking to enter the banking industry will face significant challenges in securing approval.
Mixed reactions from the crypto community
The idea of crypto firms becoming banks has led to divided opinions within the community. Some believe it goes against the core principles of cryptocurrency, while others see it as a necessary step for wider adoption.
Many crypto enthusiasts have expressed their opposition to the move. An X user named Cedric Beau stated, “Bitcoin doesn’t need banks. Any crypto company trying to become a national bank isn’t decentralising; it’s integrating into the same system $BTC was built to replace”.
Another user, MooseyB17, agreed, saying, “NO! The whole point of crypto is to get away from banks”. However, others within the community see this as an opportunity for growth.
Some believe that obtaining bank charters could help provide regulatory clarity and bring cryptocurrencies into the mainstream.
One X user commented, “Regulatory clarity incoming? This could be a game changer for Bitcoin and crypto adoption”.
The future of crypto banking and regulation
Crypto firms are looking to apply for banking licences at a time when US regulators are changing. Some industry executives believe the current administration may be more open to approving these applications.
Barrage noted that discussions and preparations for bank charters have increased in recent months. “We have seen a lot more interest. We are working on several applications now”, she said.
However, firms remain cautious and are waiting to see if approvals will be granted. Some companies are already working on their applications, but it remains unclear how many will be successful.
A bank charter offers several advantages. In addition to lowering borrowing costs and enhancing credibility, it could also open up new business opportunities. “It makes sense for them to get ahead of the curve and in turn, get more credibility and capital at a lower cost”, Goss explained.
Despite these potential benefits, past trends suggest that getting a bank licence will not be simple. From 2010 to 2023, only a handful of applications were approved each year due to tough regulatory scrutiny.
Experts believe that while strict regulations are necessary for financial stability, the process could be made more efficient to allow for quicker approvals.
Regulators have acknowledged that the process needs improvement. Travis Hill, the acting chair of the Federal Deposit Insurance Corporation (FDIC), has said that the agency will encourage more firms to apply for bank charters to keep the sector competitive.
Additionally, Federal Reserve Governor Michelle Bowman has pushed for faster approvals of new bank applications.
Currently, the US has over 4,500 banks. However, experts predict that this number may shrink due to an increase in mergers and acquisitions among regional banks. At the same time, new entrants from the crypto industry could change the financial landscape.
Whether these crypto firms will succeed in becoming banks remains uncertain, but the growing interest suggests that this trend will continue to be a major discussion point in the coming months.
