The Crypto-Banking Shift: Why Firms Are Seeking Charters and What Comes Next

Crypto firms haven’t always had the best relationship with the banking sector. And, it’s easy to see why from the collapse of crypto-friendly banks Silvergate and Signature, and the introduction of restrictive regulations like the Staff Accounting Bulletin (SAB) 121 rule.

However, with the Trump administration taking a pro-crypto stance and the current legislative movement, which has already seen the introduction of a new stablecoin bill, the winds are shifting.

Crypto firms like Circle, BitGo, and Paxos are now knocking on doors that were once closed, seeking not just to access banking services but to enter the regulated banking sector as banks themselves.

Here, we look at why they’re seeking bank charters and how this could redefine payments, traditional finance, and the broader crypto industry.

The Regulatory Winds Are Changing

With the previous administration’s “crypto-hostile” stance, firms like BitGo seeking bank charters seemed like a pipe dream. 

However, thanks to the change in leadership, regulatory shifts such as the approval of a new Chair at the Securities and Exchange Commission (SEC), and the rescission of restrictive regulations like SAB 121, this new phenomenon could become a reality. Here’s how:

New Leadership Signals a Friendlier Climate for Crypto

Under previous leadership, the SEC primarily took a litigious stance against crypto issuers and firms instead of providing regulatory clarity. This, unfortunately, resulted in development delays in the crypto industry. For example, the SEC’s case against Ripple Labs led to Coinbase delisting XRP and may have contributed to the delayed “XRP ETF” movement. 

However, with the confirmation of crypto advocate Paul S. Atkins as SEC Chair, the regulatory body is expected to focus on offering long-sought regulatory clarity. Atkins confirmed this, saying that the SEC is ready to “adapt to and accommodate new developments” in the crypto market. This is already happening, with the SEC ending its years-long legal battle with Ripple and the development of the Crypto Task Force.

These moves signal a more friendly climate for crypto businesses. Therefore, they may have contributed to crypto firms’ decision to seek bank charters. 

Trump Administration Reopens the Doors to Crypto Banking

The Trump administration has also emboldened crypto companies to seek charters by reversing restrictive policies. For example, it rescinded the Biden-era SAB 121 rule, which required financial institutions to report crypto holdings as liabilities on their balance sheets. This reduces friction for traditional banks seeking to offer crypto custody services, potentially bridging the gap between traditional banking and the crypto sector. 

Further, the Office of the Comptroller of the Currency (OCC) rescinded Interpretive Letter 1179 through Interpretive Letter 1183. Interpretive Letter 1179 required national banks to obtain written supervisory non-objection before engaging in crypto-related activities, causing considerable friction. 

The OCC also published Interpretive Letter 1184, affirming that banking institutions can “provide and outsource cryptocurrency custody and execution services on behalf of customers.” These letters not only make it easier for national banks and federal savings associations to offer crypto services but also open the door for crypto firms to pursue banking status. 

Why Crypto Firms Are Seeking Bank Charters

The path to getting a bank charter can be pretty challenging — only five new bank charter applications were approved annually between 2010 and 2023. So, why are cryptocurrency firms chasing them? Well, the potential benefits are too extensive to ignore. Here’s a look at some of them:

Service Expansion

A national bank charter would allow crypto firms to offer services and financial products that traditional banking institutions provide, such as deposits and loans, alongside their crypto offerings. This can broaden their client base, potentially resulting in higher earnings. 

Banking status could also make it easier for them to expand integrated financial products, like crypto-backed loans. This may encourage people to increase their cryptocurrency investments, supporting the growth of the digital asset market. 

Increased Legality and Legitimacy

While individuals and institutions are increasingly learning about and investing in crypto assets, some are still cautious. This is because the crypto market’s regulatory landscape is in its development phase — and is, therefore, still relatively ambiguous. 

A national bank charter could change this. It would subject crypto firms to strict federal oversight, giving individual customers and institutional investors some regulatory assurance. This could encourage even wider acceptance of crypto companies.

Direct Access to Payments Systems

Banking status could grant crypto firms access to the Federal Reserve’s payment rails, bridging the gap between crypto and fiat ecosystems. This could facilitate smoother on-ramps and off-ramps. 

A bank charter could also eliminate crypto firms’ dependency on traditional banks for services like fiat payment processing. This could lower transaction fees for customers, promote faster settlements, and give crypto firms more control over their liquidity. 

Regulatory Compliance

We know what you’re thinking: Doesn’t acquiring banking status expose crypto firms to more regulations? Yes! However, this can be a good thing. 

With bank charters, crypto firms would be subject to regulatory oversight by banking regulators such as the OCC, the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC). These agencies have matured their regulations and can provide a clear, unified framework, reducing compliance ambiguity. 

National bank charters can also streamline compliance, particularly for firms regulated by state regulators, by reducing the risk of sudden enforcement actions. This is because a federal bank charter would limit state regulators’ authority. 

A stable regulatory landscape enables long-term planning, which can promote compliance. 

Improved Cost of Capital

If chartered, crypto firms could hold customers’ deposits. These deposits can serve as sources of capital, thereby minimizing the need for expensive solutions such as private debt. 

Bank charters can also increase lender and investor confidence by offering some regulatory clarity. This could increase their willingness to provide credit and lower their interest rates, improving firms’ liquidity and operational flexibility. 

Examples of Crypto Firms Seeking Bank Charters

Various crypto firms are actively pursuing U.S. bank charters. These include:

• Circle: While rolling out a new cross-border payments network, the Circle Payments Network (CPN), Circle is also seeking a banking charter. If approved, the legitimacy of its stablecoin (USDC) could grow. 
• BitGo: Approval could help the firm offer regulated custody services and expand its offerings. 
• Paxos: A bank charter could solidify its position in the stablecoin market and build trust among large institutions seeking regulated partners. 
• Coinbase: The giant crypto exchange is actively considering applying for a U.S. federal bank charter to help attract more traditional investors and customers. 

It’s not uncommon for regulators to offer bank charters. For example, the OCC granted Anchorage Digital a federal banking charter in 2021, and the State of Wyoming allowed Kraken to operate a special purpose depository institution (SPDI) in 2020. 

Granted, these charters are somewhat limiting — they don’t allow the firms to accept individual customers’ deposits — but they set a positive precedent. 

Implications for Business and Finance Leaders

If successful, banking charters could have significant implications for both traditional and digital finance markets. These include:

The Rise of Neobank-Like Crypto Firms

Bank charters would enable crypto exchanges and platforms to offer services traditionally reserved for banks, such as holding customers’ deposits and issuing loans using fiat currency. 

This essentially transforms them into “neobank-like” institutions, blurring the lines between traditional finance (TradFi) and decentralized finance (DeFi). It also means crypto firms will now be competing directly with traditional banking institutions and neobanks. 

Infrastructure Will Be the Differentiator

With bank charters, crypto firms won’t just need to be innovative; they will also need to comply with stricter regulations and compete with legacy institutions with considerable experience in the traditional banking system. This calls for:

• Strong, compliant infrastructure for crypto tokenization and settlement: To facilitate secure and efficient digital asset issuance, management, and transactions. 
• Institutional-grade custody systems: To safeguard customers’ assets and ensure compliance. 
• Regulatory reporting tools: To facilitate compliance with regulations like the Bank Secrecy Act (BSA) and the Federal Reserve Act. 

Strong infrastructure and compliance readiness can limit crypto firms’ regulatory risks and provide some competitive advantage. 

Increased Opportunities for Crypto Partnerships

While institutional investors have been increasingly adopting digital assets and working with crypto exchanges and providers, some are still hesitant. However, bank charters could change this by providing regulatory clarity. 

This may unlock opportunities for crypto partnerships with more institutional managers, fintechs, traditional banks, and legacy payment networks, such as Fedwire and SWIFT. 

This is already a reality for federally chartered digital asset bank Anchorage Digital, which currently serves large institutions like BlackRock.

AlphaPoint: Powering the Future of Regulated Crypto Finance

Traditional and digital finance markets are on the verge of a new transformative phase. With crypto firms like BitGo and Circle actively seeking bank charters, a new type of institution is about to emerge, not only enhancing access to digital assets but also improving traditional banking services. 

If approved, these banking charters could enable crypto firms to offer a broader range of financial services, lend credibility to digital asset firms, and open doors to partnerships with more institutional investors. 

With AlphaPoint, you could also become part of this new banking era. We offer turnkey, white label exchange, payment, tokenization, and banking infrastructure, as well as liquidity solutions and professional advisory services, supporting exchanges, issuers, and fintechs as they transition into “neobank-like” territory. 

Schedule a demo with AlphaPoint today to learn how our technology stack can help you in the next frontier of banking!