The banking sector is wary of cryptocurrencies after Silvergate and firm closures

The banking sector in the United States is hesitant to do business with crypto companies after the closure of the financial institutions that had the most cryptographic support in the country earlier this month.

A collection of industry participants, bank executives, and investors are reporting various instances of banks making crypto partnerships difficult, from forming lengthy application procedures for such firms to abandoning the industry altogether.

The Crypto Banking Problem

As reported by Bloombergcrypto firms are desperately looking for new partners after Silvergate Bank, Signature Bank, and Silicon Valley Bank (SVB) collapsed within a week in mid-March.

For example, Cross River Bank received more than 100 applications from new clients within days of the closure of SVB and Signature. Although not all of those customers were crypto companies, CryptoPotato previously reported that Swiss crypto-focused banks have been getting a similar surge in new traffic of late, particularly from old ones silver door clientele.

Unfortunately for the industry, Cross River turned down almost all of those requests. Spokesperson Eden Hoffman told Bloomberg that the company is “only considering companies with existing relationships with Cross River that are top-tier customers and integral to the fintech ecosystem.”

Some large global banks, including JP Morgan Chase and Bank of New York Mellon, have select exposure to the industry. However, Bitstamp CEO Bobby Zagotta claims that they have lengthy onboarding processes that can take up to 6 months. The cryptocurrency exchange itself once used SIlvergate and Signature, but is now MVB Financial Corp. and Customers Bancorp, as it explores additional regional partners.

Operation Chokepoint 2.0

While financial authorities have not imposed a blanket ban on the crypto-asset sector, the Federal Reserve, FDIC, and OCC have issued guidance to banks regarding the risks to be aware of when dealing with crypto companies. One included the “unpredictability” of deposit inflows and outflows, which can create instability for a bank overly exposed to the sector in times of industry-wide market panic.

Some suspect that the swift crackdown on cryptocurrency banking partners, combined with increasing regulatory enforcement actions against major companies in the industry, is part of a broader government conspiracy to drive cryptocurrency out of the US for For example, Tom Emmer, a pro-cryptocurrency congressman, has scrutinized the government’s forced closure of Signature Bank as a deliberate attack on cryptocurrencies.

Castle Island Ventures general partner Nic Carter has popularized this theory as “Operation Chokepoint 2.0.”

“No bank wants to raise their hand and say, ‘We’re the guy that serves the cryptocurrency industry,’ because they saw what happened,” he told Bloomberg. “No bank wants to be considered the next Silvergate or Signature.”