Banks Warier of Serving Crypto Clients After Blowups, Scrutiny 26
US banks, already hesitant to work with crypto customers, are now even warier of providing services to the industry after a string of regional-lender collapses and amid heightened scrutiny by regulators. From a report: The closure of crypto-friendly Silvergate Capital and seizure of Signature Bank has left crypto firms struggling to find new banks for depository and payment services. While there's no blanket ban on serving crypto clients, financial firms are imposing lengthy application procedures, turning away smaller companies and some retail platforms, and in some cases shutting the door on crypto businesses altogether, according to industry participants, investors and bank executives.
Cross River Bank, for example, received requests from more than 100 new clients -- not all of whom were crypto companies -- seeking a safe harbor for their deposits within days of SVB Financial Group's Silicon Valley Bank and Signature collapsing, according to a person with direct knowledge of the bank's business. The closely held company turned down almost all those requests, the person said. Among the few crypto companies that have won over the bank is stablecoin issuer Circle Internet Financial, which expanded a partnership with Cross River, announced after Silicon Valley Bank failed. Earlier this month, lenders that were bidding to buy failed Signature Bank from the Federal Deposit Insurance Corp. specifically asked not to take on the digital-assets business, according to a person familiar with the process. Signature's crypto business was not part of the eventual takeover by New York Community Bancorp, and the FDIC is still seeking to sell Signet, Signature's real-time payments network for crypto firms.
Cross River Bank, for example, received requests from more than 100 new clients -- not all of whom were crypto companies -- seeking a safe harbor for their deposits within days of SVB Financial Group's Silicon Valley Bank and Signature collapsing, according to a person with direct knowledge of the bank's business. The closely held company turned down almost all those requests, the person said. Among the few crypto companies that have won over the bank is stablecoin issuer Circle Internet Financial, which expanded a partnership with Cross River, announced after Silicon Valley Bank failed. Earlier this month, lenders that were bidding to buy failed Signature Bank from the Federal Deposit Insurance Corp. specifically asked not to take on the digital-assets business, according to a person familiar with the process. Signature's crypto business was not part of the eventual takeover by New York Community Bancorp, and the FDIC is still seeking to sell Signet, Signature's real-time payments network for crypto firms.
Really? (Score:2)
Water wet.
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No, water is not wet. Water makes other things wet.
Translation (Score:2)
"Wait, what, we don't get bailed out this time? Really? Damn! We have to stop playing in the casino with the money!"
Banks are doing crypto a favor. (Score:5, Informative)
People seem to forget the whole purpose of cryptocurrency -- which is to be free of government-backed fiat currency and therefore potential government interference with your money. With Bitcoin, a federal tax court might be able to order you to turn your money over, but it can't *make* you.
It seems to me these crypto companies actually work against that vision by transforming a unit of what was supposed to be an *alternative* currency into a speculative token whose value is *defined* by how many US-government-backed dollars you can get for it. This makes the value of that currency highly volatile, undermining its usefulness *as money*. You might as well invest in NFTs, which are essentially the same thing.
Re:Banks are doing crypto a favor. (Score:5, Interesting)
People seem to forget the whole purpose of cryptocurrency -- which is to be free of government-backed fiat currency and therefore potential government interference with your money.
It seems to me these crypto companies actually work against that vision by transforming a unit of what was supposed to be an *alternative* currency into a speculative token whose value is *defined* by how many US-government-backed dollars you can get for it.
But if your ultimate goal is to use cryptocurrency as a medium of exchange (rather than a vehicle for speculation which seems to be how most people are currently using it) then you have a chicken-and-egg problem. No business wants to accept crypto as payment for "stuff" if they can't also use crypto to pay for "stuff". So no businesses accept crypto as payment, which means no one can use crypto to pay for stuff, which means that businesses are not incentivized to start accepting crypto as payment.
The ability to convert crypto to other forms of currency provides a way to bootstrap out of this viscous cycle. Without it mass adoption of crypto currency is highly unlikely
Of course whether or not the mass adoption of crypto currency is actually desirable is (IMHO) highly debatable. But that's a whole other discussion.
Okay, hear me out... (Score:4, Insightful)
But if your ultimate goal is to use cryptocurrency as a medium of exchange (rather than a vehicle for speculation which seems to be how most people are currently using it) then you have a chicken-and-egg problem. No business wants to accept crypto as payment for "stuff" if they can't also use crypto to pay for "stuff". So no businesses accept crypto as payment, which means no one can use crypto to pay for stuff, which means that businesses are not incentivized to start accepting crypto as payment.
Exactly this. Now, if Bitcoin and friends were able to make a cryptocurrency as easy as Venmo, it may have been able to make inroads that way...but the whole private/public key and wallet situation wasn't exactly user-friendly, and it still has that chicken-and-egg problem to a good extent.
Now, I remember years ago reading about the Tide Economy [theatlantic.com]. Essentially, bottles of Tide are sometimes used in place of cash, because it's got most of the properties one would want in a currency: it's difficult to counterfeit, it's value is generally-agreed-upon for both the buyer and the seller, and if it can't be used as a medium of exchange, then it's perfectly tenable to use for its intended purpose, and one can 'cash out' accordingly.
I'm thinking that the problem cryptocurrencies have is the absence of that last piece. If nobody wants cryprocurrency, it's just bits on a blockchain that have no inherent use. Suppose, for a moment, that there were "Tidecoin" - a cryptocurrency that was backed by its creators having a warehouse of Tide, where it could be used as currency, and holders could cash out the coin in laundry detergent if it was otherwise undesirable.
The single biggest issue here is that the 'decentralized' selling point of crypto goes away - the warehouse, and whoever controls it, is a central authority who 'prints money' by acquiring Tide. It's certainly got its issues beyond that - theft of Tide, either from the warehouse or as a means of acquiring Tide to trade for the currency, would be an obvious one. Its propensity to make 'money laundering' more humorously literal being another, and P&G changing the MSRP making it vulnerable to volatility. Obviously, some of this can be mitigated by also taking Persil, or non-detergent products, at which point you've invented 'Amazon coupons with extra steps'.
But...I do think you're right in that the chicken-and-egg problem of two people needing to agree to exchange it is a problem that is going to be inherent to any cryptocurrency, and the only real solution to it is for there to be a centralized entity assuring a consistent value...which defeats half the point of a decentralized currency.
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Actually, your point is why "precious metals" were the historic currency of choice. (There are exceptions. Cowrie beads, giant stone wheels, I believe Sparta used Iron as their currency.) That gives you a decentralized currency with a value. I don't think the "warehouse of Tide" would count in that manner, though.
I don't, off-hand, see ANY way to add value to a cryptocurrency in a distributed manner.
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Actually, your point is why "precious metals" were the historic currency of choice. (There are exceptions. Cowrie beads, giant stone wheels, I believe Sparta used Iron as their currency.) That gives you a decentralized currency with a value. I don't think the "warehouse of Tide" would count in that manner, though.
I don't, off-hand, see ANY way to add value to a cryptocurrency in a distributed manner.
Many economists would argue that having no intrinsic value is actually beneficial for a currency. If the thing you're using as currency has an intrinsic use then you pay an opportunity cost when you forgo that use and instead use the thing as currency. One of the reasons why gold was historically used as a currency was that it was too soft for most industrial uses (of course in the electronic age that's changed but historical inertia is a powerful force to overcome).
Generally if you're trading for stuf
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A tax court can't make you give over your keys, but they can always hold you in contempt and lock you up until you comply.
At the end of the day, if you believe the rosy libertarian dream of cryptocurrency, the hard reality is that the state's power to compel is vast, and your power to fight the state, particularly when trying to basically hide income, is miniscule. But that's only if you buy into the crypto dream. The reality is that crypto has simply enabled Ponzi schemes and other con games that have thus
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Well, the tax court can take away the your house or car. That's the real limitation to both the Utopian scheme: ultimately people have things that they want a government enforced title to. That's also the Achilles heel of crypto for contraband sales and money laundering. Eventually the sellers want to convert their gains into government-recognized property, and at that point they've got the end of a thread to pull on.
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I guess the true believers can move to Sealand... that is until the UK sends a naval ship to end that particular libertarian fiction as well.
Re: Banks are doing crypto a favor. (Score:1)
All national borders are a fiction. Crimea, for example.
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There are unbanked exchanges out there that won't even deal in fiat. Granted they still track the relative value of BTC, ETH, vs. USD/EUR/etc. but if you want to do any actual trading, you're trading crypto for crypto. The traditional way to gain entry to these exchanges was to mine crypto out, though now more traders use a banked on-ramp like Binance or Coinbase.
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There are unbanked exchanges out there that won't even deal in fiat. Granted they still track the relative value of BTC, ETH, vs. USD/EUR/etc. but if you want to do any actual trading, you're trading crypto for crypto. The traditional way to gain entry to these exchanges was to mine crypto out, though now more traders use a banked on-ramp like Binance or Coinbase.
It's great that I can use such an exchange to convert my Bitcon to Tether to Eth and back again. But unless / until I can use one of those to...like...buy a sandwich or something, what exactly is the point?
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Holding the scarcest asset ever created? One that you alone hold the keys to and that doesn't require you to trust any third party? These things might not be important to everyone. There might be other reasons. Number go up?
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Holding the scarcest asset ever created? One that you alone hold the keys to and that doesn't require you to trust any third party? These things might not be important to everyone.
I think "scarcest asset ever created" is overstating things although I suppose, strictly speaking, it might depend on how broadly you choose to define "asset". And value is in the eye of the beholder, so if you find value in something strictly because it is scarce...good for you I guess. But I don't personally feel the need to possess an otherwise useless thing strictly because there is a limited supply of it. By that logic you could justify outrageous prices for all manner of stupid things, from tulip
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Two reasons really:
1). Out-trade other miners to grow your stack
2). Exchange what you can mine for something you can't
Catch-22 (Score:2)
"Free from government interference" winds up meaning "unstable and unreliable." And "useful as a currency" requires "stable and reliable."
You cannot throw out that bathwater without throwing out the baby as well.
Example: every single time someone had their crypto assets stolen they immediately started begging the exchange to interfere, and force a return of the stolen assets. The ability to reverse transactions is just one way of many that government interference winds up providing the stability necessary
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It seems to me these crypto companies actually work against that vision by transforming a unit of what was supposed to be an *alternative* currency into a speculative token whose value is *defined* by how many US-government-backed dollars you can get for it. This makes the value of that currency highly volatile, undermining its usefulness *as money*. You might as well invest in NFTs, which are essentially the same thing.
This is why the SEC has gotten involved: "a speculative token whose value is *defined* by how many US-government-backed dollars you can get for it" is a security, and falls under their purview. If it was simply a currency, it would not fall under SEC regulation.
Stress testing was useless (Score:1)
Slightly different point, but it is related to the banking industry and regulations in general, so here it goes: Too many posts have been written about SVB skirting regulations, however these regulations would not have changed *anything*, SVB didn't go through stress testing, however the Fed and FDIC agreed that they would have passed the tests, because these tests tested the wrong stress. They test whether the banks would survive under lowering interest rates......... so f'ing what??? That is not the st
Good (Score:1)
Fuck cypto customers and businesses. I hope they lose everything they have.
Re: Good (Score:2)
Then you'll be disappointed to hear that the price of Bitcoin has climbed while all these banks crashed and burned.
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Of course it did. But that doesn't really disappoint me, because that just means even more people will be hurt by its eventual collapse - and they deserve every bit.
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