Crypto Companies Facing Challenges Opening Bank Accounts

Technical Analysis | Uncategorized

At the onset of cryptocurrencies and blockchain technology in general, one of the precedented notions was that digital assets could revolutionize the traditional banking systems worldwide if not replace it all together. The nature of cryptocurrencies has however caused such a furor in conventional banking regulations that still poses a challenge to crypto startups to date. The decentralized nature of digital assets which means that the trade and exchange of these assets does not require regulation by a third party. Also the value of digital assets is based on the backing that it gets from investors, meaning that their value can go as high as the levels hit by Bitcoin at the close of 2017.

Once the wider population started to become interested in cryptocurrencies and the blockchain technology behind it, it was at first regarded as a new tech hype not much unlike the discovery of the internet and that it would die down. Blockchain as it turns out is more revolutionary than it was assumed to be what with its reduced transaction costs and effective cross-border transactions.

The major shift has allowed people who could not access bank and trade services if they need it. They no longer have to go to a bank cap in hand to request financing which are attached to high interest rates. One of France’s banking Giants actually projected that blockchain technology would eventually make banks redundant. As far as regulation goes, it is currently the biggest pitfall in blockchain being incorporated in banking. The question on regulation is also on the fact that banking super players are not convinced that blockchain technology has matured enough to warrant large scale application.

If larger companies do not serve crypto companies it will be a daunting task for smaller banking players to confidently take advantage of the untapped cryptocurrency market in terms of clientele. In 2017, the Financial Times published an article on the attitude of banks across the UK, that forced crypto companies to seek banking services outside the country, on the premise that crypto trading is riddled with fraudsters. Crypto players view the negative perspective of banks as that the competing technology poses a threat to banking exchanges such as Western Union, which was pitted against Ripple XRP exchange last year and the exchange rates for the cryptocurrency had not reduced. The founder of Profede, Juan Imaz, stated that banks will always feel threatened by blockchain and digital assets because they take away control from them, instead of taking advantage of the benefits offered by blockchain technology to make banking accessible to a wider population.

Bitpay Chief Commercial Officer, Sonny Singh said that the company has been turned away by many banks. The company has the same grievances as those faced by NKB Group, a blockchain investment firm that is still struggling to commence banking relationships due to the high resistance of banks. Never mind that at the G20 Summit in 2018, finance ministers from leading economies highlighted that blockchain technology would go a long way to promote financial inclusion in the financial sector.

Granted, cryptocurrencies face the problem of price stability and regulation and blockchain itself needs to overcome scalability and speed challenges. Technology is characteristically incremental in nature and this should not hinder banks from including crypto into their financial functions. It is not all gloomy as some small banks have taken the risk and included crypto companies as clients such as Silver Gate Bank, which is a state chartered bank based in San Diego California.

Michael Hudson, CEO of Bitcoin investment firm Bitstocks said that following the attitude of UK banks, his company had to procure the services of Gibraltar and Poland, who’s banking systems and crypto jurisdiction are more stable. However, he did mention that the fact that the company has to look so far for services, is disruptive and affects the confidence of clients and is not cheap either.

 

 

 

 

 

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