Crypto companies report being deposed to the Blockchain Association

The lobby group requested information from US banking regulators last week

The Blockchain Association, a non-profit organization focused on crafting pro-crypto policy in the US, has received several reports from crypto companies claiming they are being beaten down by traditional financial institutions.

“There have been some very interesting companies that have reached out,” said Kristen Smith, executive director of the Blockchain Association. “It is very clear that banks are denying crypto companies access to bank accounts.”

The lobby group had asked crypto companies that have had trouble keeping or finding banking services to contact it last week.

It is unclear whether the banks are acting on their own or whether government bodies are pressuring them to withhold services from crypto companies.

Smith sees the events of the last few months as almost a regression in terms of the position of crypto companies in the banks. Although it was difficult for companies in the crypto market to get a bank account ten years ago, the process had become much easier since then.

Reaction to FTX’s collapse

Everything changed last fall with the spectacular collapse of one of crypto’s biggest exchanges.

“I actually think this is much more of a reaction to what happened with FTX,” she said.

Smith highlighted that Sam Bankman-Fried, the former CEO of FTX who is currently on bail, was close to many regulators in Washington. “I think a lot of this is an effort to make sure that something like what happened to him doesn’t happen again,” she said.

So Smith is not ready to frame the de-banking of crypto companies as an attempt by government officials to block the creation of a new blockchain-based financial system.

But she is also not willing to rule out a deeper coordination of regulators and other public bodies.

“From our perspective, there’s a lot of smoke right now and we know there’s a fire somewhere,” Smith said.

It’s definitely smoke – Barney Frank, the former chairman of the House Financial Services Committee and co-sponsor of the Dodd-Frank Act, highlighted that the FDIC did not explicitly say that the crypto-friendly Signature Bank was insolvent before closing it on March 12.

Additionally, Flagstar Bank took control of Signature’s deposits on March 20, but the FDIC said the bank did not bid on $4B in deposits tied to its “digital assets” business.

“It’s one thing to try to shut out an industry from having access to a bank account,” Smith said. “It’s quite another thing to potentially take down a bank and take control of it [it].”

Crypto needs banks, for now

Amidst the frustration surrounding de-banking, there is a certain irony in crypto companies’ struggle to find consistent banking services. Anti-bank rhetoric is not uncommon in the crypto space — DeFi is often promoted as an alternative financial system, and Bitcoin’s launch even included an embedded message widely interpreted as a criticism of bank bailouts.

Still, for now, crypto companies generally need banks to pay employees, taxes and suppliers, Smith says.

The Blockchain Association plans to take action based on their findings from the reports they receive from de-banked crypto companies and the results of a Freedom of Information Act (FOIA) request they submitted to the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency (OCC).

Smith expects a response to the FOIA request to take from six months to a year.

As concerns about de-banking grow, the Blockchain Association, which offers membership, has a more pressing issue — “the main priority is helping our member businesses get bank accounts,” Smith said.