When Citibank locked trading platform Swan Bitcoin out of its corporate bank account in October, it did so without warning or explanation. The only confirmation of what had happened came in the form of a paper check for the account balance, delivered to an old home address of Cory Klippsten, Swan’s CEO.
“There was absolutely no notice,” says Klippsten. “We got no phone call, no email, no snail mail letter—nothing. They just shut it down.”
Swan had a secondary account at another bank and so could still make payroll, but for a smaller firm this could have been an “existential threat,” Klippsten says. Citibank did not respond to a request for comment.
The crypto industry needs banking; it needs it badly and always has. Without a banking partner, crypto companies cannot accept dollar deposits in return for services or in exchange for tokens, nor can they pay their employees or vendors. That means the quest to build a parallel financial system free of intermediaries is dependent, inconveniently, on an accord with those same intermediaries—the banks.
Wall Street has often been reluctant to work with crypto companies, so many in the industry came to rely on just two US banks—Silvergate and Signature—which made themselves invaluable to crypto clients by offering real-time payments outside of traditional banking hours. Over the past week, both banks have closed, Silvergate because of overexposure to the ailing crypto sector and Signature due to a liquidity crisis triggered by a sudden flood of withdrawals. That has left many crypto businesses—particularly smaller ones—back where they began: unbanked and with few alternatives at hand.
“Overwhelmingly, banking is the challenge for crypto companies,” says William Quigley, cofounder of stablecoin issuer Tether. “A lot of people in crypto are denied access to banking services. It’s a real problem.”
When the crypto space began to grow in the early 2010s, mainstream banks were often hesitant to work with a sector they saw as inherently risky. But as the industry began to move closer to the mainstream over the past few years, Wall Street’s level of comfort grew. Big banks such as JPMorgan and BNY Mellon started banking crypto exchanges and letting their clients store and trade coins. Regulators kept an eye on the sector, but besides a few “policy sprints,” they did little.
Then in 2022, crypto collapsed in spectacular fashion. In May, the failure of the Terra-Luna stablecoin wiped out an estimated $60 billion, prompting a chain reaction that later took down crypto lender Celsius, hedge fund Three Arrows Capitals, and others. This was followed in November by the implosion of crypto exchange FTX, whose founder has since been charged with 12 criminal offenses, including bank fraud, wire fraud, and money laundering.