The traditional banking sector is often viewed as the antithesis of Bitcoin (BTC) and decentralized finance—an industry that decentralization seeks to disrupt or even dismantle. Interestingly, however, many banks are in dire need of the attributes and facilities offered by cryptocurrencies, particularly blockchain technology.
The Shift in Traditional Banking Attitudes
A growing number of cryptocurrency-friendly banks are emerging, offering alternatives to legacy systems and providing secure storage for this new asset class. Yet these institutions face significant hurdles, primarily due to regulatory uncertainty.
Regulatory ambiguity is widespread in the crypto banking sphere. The industry is still nascent, lacking a comprehensive regulatory framework, and traditional regulators often lean toward skepticism or outright opposition.
That said, some regulatory bodies exhibit forward-thinking attitudes and innovative visions. The Swiss Financial Market Supervisory Authority (FINMA) is one such example.
According to reports from late August, FINMA recently granted banking licenses to two crypto banks. This precedent allows newly approved institutions to bypass the need to partner with traditional banking entities. SEBA and Sygnum, the two licensed crypto banks, are now regulated like any other financial institution. Guido Bühler, CEO of SEBA, emphasized what this means for the cryptocurrency industry:
This shows that regulators are taking this topic seriously. The ice has broken. Services related to digital and traditional assets can now be discussed and adapted within a strict regulatory framework. This will advance the blockchain industry and allow existing and new companies to create new value and business opportunities.
Crypto Banking Developments in the United States
In the U.S., the term "crypto bank" often simply refers to a safe haven for cryptocurrency storage. Pioneers like Coinbase, and more recently Fidelity Digital Assets, function more like quasi-banks. Coinbase Custody, for instance, operates in a regulatory gray area—it doesn’t meet the conventional standards for bank regulation but falls under the jurisdiction of the New York Department of Financial Services (NYDFS).
Notably, NYDFS has actively sought changes in crypto regulation. As early as July, the agency established a new division dedicated to researching and innovating financial technology. This evolving department is responsible for licensing and supervising crypto assets and their institutional counterparts. Superintendent Linda Lacewell highlighted the importance of this regulatory expansion in a statement:
As innovations in banking, insurance, and regulatory technology continue to grow, the financial services regulatory landscape must evolve and adapt.
Opposition and Regulatory Challenges
Not all regulators share this perspective. The German Federal Financial Supervisory Authority (BaFin) stated in a declaration to its banking supervision units:
This emerging industry needs to comply with existing rules and standards. We believe that sustainable financial innovation must be capable of adhering to these regulations. The widely followed concept of technology-neutral regulation is flexible enough. If regulatory changes are indeed necessary, they will be carried out by lawmakers.
An example of regulatory adaptation is the much-criticized BitLicense—a framework for regulating cryptocurrency purchases, sales, and issuance. When introduced in New York, it encountered significant challenges. Many blamed it for the early exit of crypto firms like Bitfinex, BitMEX, and Kraken, which temporarily suspended operations in New York after its introduction.
During a 2018 parliamentary hearing, BitLicense was described in evidence submitted to the Treasury Committee as an "extreme example of regulatory overreach."
Even in Malta, a small nation that brands itself as the "Blockchain Island" with industry-friendly policies, crypto startups struggle to access financial services due to regulatory hesitancy. According to reports from the Times of Malta, companies are being turned away by banks that lack the "risk appetite." Instead, financial services remain largely available only to entities fully regulated by the Malta Financial Services Authority (MFSA)—a process that can take up to six months for a first-round response.
Roderick Psaila, former CEO of a leading agricultural bank, is seeking to address this issue by applying for a credit institution license from the MFSA. If approved, the license would permit a range of financial activities, including financing leases, payment services, currency brokerage, and secure custody services.
A New Dawn for Banking
Cryptocurrency is inherently global, free from the same jurisdictional or geographical constraints as fiat currencies. About a decade since its inception, the public is gradually embracing this revolutionary concept. Take Facebook’s Libra (now Diem), for example—aimed at disrupting the existing financial system or at least creating its own internal cashless economy.
But as early as July, former U.S. President Donald Trump tweeted his thoughts on Libra, suggesting that if Facebook wanted to become a bank, it would have to seek a new banking charter. Similarly, EU antitrust regulators are currently investigating Facebook for potential anti-competitive behavior.
In essence, Facebook attempted to create an evolved version of Bitcoin. This time, however, governments and banks worldwide are paying close attention. Supported by blockchain technology, the reality of digital assets reshaping the financial system is becoming an increasingly prominent trend.
In its current form, crypto banking regulation is still immature—an extension of cryptocurrency concepts grafted onto legacy systems. If a future for crypto banking does exist, the regulatory precedents set by projects like Libra will inevitably serve as its foundation.
For this to happen, regulations must be adaptable enough to foster innovation rather than stifle it, while also meeting the current standards of traditional banking.
👉 Explore current regulatory trends
Frequently Asked Questions
Why are traditional banks often skeptical of cryptocurrencies?
Traditional banks operate within well-established regulatory frameworks designed for centralized control. Cryptocurrencies challenge this model with decentralization, creating uncertainty regarding compliance, security, and financial stability.
How are some countries embracing crypto-friendly banking?
Countries like Switzerland and Malta are leading the way by granting banking licenses to crypto-focused institutions and creating specialized regulatory divisions. These steps provide clarity and encourage innovation within legal boundaries.
What is a BitLicense and why is it controversial?
BitLicense is a regulatory framework introduced in New York for cryptocurrency businesses. Critics argue it is overly restrictive, driving companies away due to high compliance costs and operational constraints.
Can cryptocurrencies and traditional banking coexist?
Yes, many experts believe so. The integration of blockchain technology into traditional banking—such as for cross-border payments and asset tokenization—shows potential for collaboration rather than competition.
What role do regulators play in crypto banking?
Regulators aim to balance innovation with consumer protection and financial stability. Their approach varies globally, with some fostering growth through adaptive policies while others enforce strict existing rules.
How can someone safely engage with crypto banking services?
Always choose licensed and regulated services, conduct thorough research, and understand the risks involved. 👉 Learn more about secure practices to protect your investments.