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Ask CryptoVantage: What if My Bank Won’t Accept Crypto Payments?
The crypto market can often feel like a pendulum swinging violently back and forth between boom and bust cycles. The spectacular collapses in 2022 left a trail of carnage in their wake. The U.S. witnessed a backlash against the crypto industry throughout 2023 with the SEC’s regulation by enforcement policy approach.
A lot of legacy banks have a history of keeping access to crypto at arms length, and the banks that have embraced the industry are often left exposed to and caught up in destruction when the crypto cycle turns. This was certainly the case for Silvergate and Signature Bank earlier this year when they were shuttered by the FDIC on March 3rd and 12th, 2023, due in part to their exposure to FTX and other crypto implosions.
The events of the past two years have seen a tightening of regulations across the board, and while clear regulation provides reassurance to banks, there are still many out there that simply refuse access to this highly volatile industry. Here is what you can do if you discover that your preferred bank won’t accept crypto payments.
Banks Need YOU More Than You Need Them
First and foremost, it is important to understand how the current banking infrastructure works. The vast majority of legacy banks rely on something called fractional reserve banking.
Essentially, when you deposit funds into a bank, the bank does not store them in a deep vault somewhere for you to freely access. Rather, the bank can take your deposited funds and lend out up to 90% of your funds to other customers seeking loans or invest your funds themselves.
The bank only needs to have enough money to cover sudden withdrawals, so it is in their interest to have as many people making deposits into the bank so they can maximize returns on the volume of funds they can distribute or invest. If your bank does not allow crypto payments, you always have the option of moving your funds to another institution that does.
Crypto Friendly Banks
There are a growing number of banks that are embracing the industry, especially in the regions that have sought to establish clear regulatory guidelines. If one bank refuses crypto payments, there is a long line of suitors who would love to have your funds deposited with them.
Ironically, banks that refuse access to crypto payments are only reinforcing why crypto is necessary to begin with and could end up seeing their fiat deposits depleted as a result.
By refusing access, banks are also highlighting that your money isn’t yours when it’s stored at their institution, and they ultimately have final say on how you spend your funds.
Additionally, institutional investors are demonstrating an appetite for exposure to the industry through investment vehicles like the Bitcoin ETF proposals we saw earlier this year. Companies like Blackrock have an immense amount of influence on the market. When they speak positively about bitcoin, the banks listen. This trend is pushing more banks into accepting crypto payments or at the very least offering tools that can access crypto.
Banking Alternatives and Third-Party Intermediaries
Refusing access to certain products, payments, or services is nothing new in the legacy banking infrastructure. During the early to mid 2000s there was an online poker boom that saw a similar strategy play out. Fueled by an explosion in online game rooms, banks and online payment rails put up barriers for their clients to access online poker.
Banks reasoned that poker was too risky of an investment for their clients and refused direct access, which led to those same clients having to access more risky third-party intermediaries to deposit funds. Sounds a little familiar.
Safe and Friendly Intermediaries
Things have changed since the mid 2000s, and the crypto industry has demonstrated a strong staying power. Adoption continues to grow everyday and institutions are piling in. Where banks have historically been the gatekeepers of financial tools, there are now major third-party intermediaries playing a growing role. Many crypto exchanges have integrated Apple Pay as a payment method, Visa is experimenting with paying ETH for gas fees, and Paypal just released their own stablecoin (PYUSD).
Users will be able to access these new avenues and more in the coming years for crypto payments. Regardless of what your bank decides on allowing direct crypto payments, they won’t be able to deny services to these major institutions.
What About ETFs?
While not directly related to crypto payments, crypto ETFs have gained a lot of traction in the last couple of years. Canada was the first to launch a Bitcoin ETF in 2021 and currently has three listed on the TSX.
Europe launched their first Bitcoin ETF in August 2023, and the U.S. has a number currently under review at the SEC. Whether or not they pass, at the very least they show a strong signal to legacy banks of the desire from clients to have exposure to crypto.
Final Thoughts: Adapt or Get Left Behind
There are more options than ever to access crypto payments. Whether it’s through your legacy bank that has seen the direction the industry and adoption is moving, traditional investment vehicles like Bitcoin ETFs, or the growing third-party intermediary services.
All banks will inevitably move to allow crypto payments or face collapse. As frustrating as it is to be a client of a bank that refuses access to crypto payments, you do have options to work around or simply fire your bank and move to a friendlier institution.
