US Authorities Banks Pressure Cut Ties Crypto Firms

The US authorities are resurrecting old methods to crack down on crypto firms and banks that provide services to the industry, several sources told BoxNews. The alleged strategy involves isolating the traditional financial system from the cryptocurrency market by relying on “multiple agencies” to discourage banks from dealing with crypto businesses.

Signature Bank

US Authorities Banks Pressure Cut Ties Crypto Firms

Several banks in the US are being pressured by regulators to cut ties with crypto firms. For instance, Binance has been told to stop handling deposits with Signature Bank, and Silvergate Capital is currently facing billions of dollars in debt due to the collapse of FTX.

In addition to these regulatory efforts, other crypto firms are also being forced to cut ties with banks because of the risks that go along with crypto trading. For example, Coinbase and Binance are no longer able to work with Signature Bank for any withdrawals smaller than $100,000 at a time, and Moonstone Bank has also decided to stop serving cryptocurrency clients.

As a result, some of the largest US crypto companies have seen their stocks fall significantly over the past month. The biggest of these is Signature Bank, which was one of the first U.S. banks to develop a real-time payments platform for the crypto industry.

Signet, which is based on the blockchain, allowed crypto firms and their customers to transfer funds instantly over the internet. This has become an important service for the crypto industry because cryptocurrencies trade on a 24-hour basis, which means many businesses are operating without any access to traditional banking systems.

A huge amount of non-interest-bearing deposits from these clients have driven Signature Bank’s growth over the last year, driving the stock price up to a very high level. But it is now reducing the volume of these deposits, which will negatively impact the bank’s loan growth next year.

Fortunately, Signature Bank only had a small amount of FTX deposits when the company collapsed, so its losses have been relatively minimal. Still, the company is seeing pressure from short-sellers and lawmakers who are questioning its anti-money laundering and Bank Secrecy Act protocols.

Luckily for Signature, it is a large bank that has plenty of assets to absorb these losses and is likely to be able to recover from this situation. However, the move to reduce these crypto deposits will put the bank at a competitive disadvantage to other crypto-friendly banks. Additionally, it will take away a major source of revenue for Signature, as it will no longer be able to invest these funds in other interest-earning assets.

Coinbase

The US authorities appear to be resurrecting old techniques from the past to crack down on cryptocurrency firms and banks that offer services to them, multiple sources told Cointelegraph. Those techniques include isolating the traditional financial system from the crypto market through "multiple agencies to discourage banks from dealing with cryptocurrency companies," according to Nic Carter, partner at venture capital firm Castle Island and CEO of Coin Metrics.

The strategy could potentially lead to crypto firms becoming “completely non-bank,” Carter said, which would be a huge mistake for the U.S., as it would result in the rest of the world getting ahead in the important crypto and blockchain technology revolution.

In terms of regulation, not a single US regulator looks at the industry favorably right now, and a number of major players in the crypto sector have been put under pressure by unfavorable media scrutiny or public sentiment.

As a result, many large players in the crypto sector have either started to sever their ties with the industry or been forced to change their approach. One of the more notable examples is Coinbase, which has slashed its workforce by 20% and enacted cost cuts to cope with the crypto bear market.

To make sure they don't fall into the same trap, Coinbase has created a number of safeguards to protect its clients. These include a current ratio that measures the amount of easily accessible assets that the firm has compared to its short term debts. This is similar to the way a bank handles its short term debts.

If a company has a current ratio of 1.00 then they are in a position where they can pay off their short term debts using readily available assets. If a company has a ratio less than 1.00 then they are not in a position to do this because their assets are not liquid enough.

Coinbase also has an FDIC insured bank account which means that any cash you hold in this account is covered up to $250,000. This can be useful for users who want faster transactions but don't need to hold their own money in crypto.

Alameda Research

As the crypto market slouched, the owners of several US authorities banks pressured their respective trading firms to re-register with them. That move has made many investors wonder if it’s best to stay in their own market, especially given the regulatory risks involved.

Alameda Research is a firm that specializes in enabling traders to trade cryptocurrency through its services and tools. It offers instant quotes, settlement, onboarding process and quant strategies.

It also makes early stage and later stage venture capital investments in crypto and fintech companies. It is headquartered in Hong Kong, but it is registered in Antigua and Barbuda.

The company’s founder Sam Trabucco is a serial entrepreneur who has accumulated a considerable amount of crypto knowledge in his years of work. He has worked at a number of crypto companies and is a highly successful trader himself.

He founded Alameda Research to capitalize on an arbitrage opportunity that he identified in the South Korean exchange-listed price of bitcoin, which was significantly higher than the exchange-listed price of other countries like the United States and Australia.

His plan was to set up an exchange that would enable traders to take advantage of this arbitrage opportunity in other parts of the world. He contacted numerous brokers to see if there was a good deal that he could buy a block of coins and sell them back at a lower price to make a profit.

In the end, he had to move the company and its assets to Hong Kong to take advantage of this arbitrage opportunity. Then, he had to start making money on it, so he raised $8 million in funding and set up the crypto exchange FTX.

It’s a strange setup. Normally, in the financial markets, trading firms and market centers operate independently. But the close ties between crypto exchange FTX and its sister trading house Alameda Research have led to questions over whether this is in the best interest of the industry.

It’s also causing a problem for the projects that received Alameda’s investment, particularly those that used the DeFi token. Since Alameda’s collapse, dozens of projects have lost their backers and had to re-think their business plans.

Protos

The US authorities are using their banks to pressure cut crypto firms off from the mainstream banking system. This is a tactic reminiscent of the Obama-era "Operation Choke Point 2.0," which sought to ringfence undesirable industries by cutting off their connection to the banking system, according to cryptocurrency and crypto-focused venture capitalist Nic Carter of Castle Island Ventures.

Some US banks have retaliated by severing their ties with crypto companies, including Binance, Moonstone Bank and Silvergate. While these firms can no longer work with banks for clients transferring less than $100,000 in cash at any given time, they are still able to meet the needs of their customers.

However, severing these connections is not an easy task for any company, and the consequences can be disastrous. Several companies have had to liquidate or close down. Some have been unable to pay vendors or meet customer withdrawals.

Then there are the looming compliance hurdles. The SEC is stepping up its crypto enforcement efforts, and there is also a slew of state and federal laws that could be imposed on banks that work with cryptocurrency firms. The result is a patchwork of regulations that may create strict requirements for both crypto firms and their customers, and it is these that have caused some banks to disengage from the crypto space altogether.

Another reason banks are shunning the space is that it remains too dependent on fiat currency. It is a difficult process to convert crypto into dollars, euros or other state-backed currencies, and it is hard for crypto businesses to make money if they can’t access the market.

That’s a problem because many of the most popular cryptocurrencies have been struggling to stay afloat. They’ve slipped from $24,000 per bitcoin to under $16,000 over the past month, and ethereum is now down by about 5.5%.

This is because regulators are weighing the risks of digital assets, which have a high correlation with traditional asset classes. They are also assessing the climate impacts of crypto mining, and are considering whether it is a good idea to tax them. In addition, the EU is considering a landmark bill on cryptocurrencies that would give digital asset firms legal certainty. But while these measures are a step in the right direction, they’re not enough to ensure stability or growth.

[![](https://files.peakd.com/file/peakd-hive/takowi/fZaBNDbh-mXkfdToSwHy1F6xC7iNSf4gD4njuiH2TJnH2d9a7sjEgsxpt7CEU4CCztgbsbyjNH6j7G2kGQrTz4oNJcKXfc7GAbnxKpAHKhba97oSqs.gif)](https://peakd.com/hive-148441/@doze/hive-colourful-animated-banner-18-3-hive-animated-dividers) ___ The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

cut

Experts

Show more authors