Crypto is scouring the world for banks to replace collapsed US lenders

by Arthur · March 13, 2023

(Bloomberg) — Crypto hedge fund manager Marco Lim spent Monday scrambling to open bank accounts in Hong Kong following the sudden collapse of three U.S. lenders.

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The hedge fund, MaiCapital, is based in the city and held cash at one of the failed institutions, Signature Bank. MaiCapital needs alternatives, and managing partner Lim pushed lenders to speed up account opening.

“The two biggest crypto-friendly banks are gone,” Lim said, referring to Signature and Silvergate Capital Corp., which also had many crypto clients and said Wednesday they would liquidate. “I’ve been through too many crises.”

Silvergate, Signature and Silicon Valley Bank were brought down in recent days by bank runs, spurring the US to introduce a new backstop to protect deposits. The loss of Silvergate and Signature is particularly severe for digital assets as the two operated real-time, seven-day-a-week payment networks for the crypto industry, helping money flow to and from the sector.

Many crypto firms are now looking to banks outside the US, with lenders in Switzerland and the United Arab Emirates among those in the spotlight. This tilt away from America had already begun due to increasing regulatory heat there following the implosion of Sam Bankman-Fried’s FTX exchange for digital assets.

“The US is not as welcoming as it was to crypto,” said Richard Galvin, co-founder of fund manager Digital Asset Capital Management in Sydney. “It makes sense to diversify across jurisdictional bases.”

Swiss alternative

A Swiss bank is one of the lenders that Digital Asset Capital Management is going through an “on-boarding process” with, Galvin said.

In Switzerland, Sygnum Bank AG and SEBA Bank AG are among those working in the digital asset sector. Further afield is Deltec Bank & Trust Ltd. and Capital Union Bank in the Bahamas also known for a crypto focus.

SEBA Bank is seeing increasing website traffic globally, but more so in the US, the company said in a statement, adding that crypto firms have applied for accounts and talks are planned with many other interested parties.

For US-based firms like the Coinbase Global Inc. exchange, US banks remain key. Coinbase on its website flags JPMorgan Chase & Co., Cross River Bank and Pathward as among the institutions where it can deposit customer funds.

Circle Internet Financial Ltd., issuer of the second largest stablecoin USDC, has just announced the upcoming automated minting and redemption of the token via Cross River Bank. Circle has licenses and registrations in the United States and held $3.3 billion of its reserves under USDC at Silicon Valley Bank.

Skeptical banks

One of the challenges for crypto companies is that banks increasingly doubt the industry after a 2 trillion dollar route, a series of explosive digital assets and intensifying regulatory scrutiny.

“There are banking services available, but the bar for entry has never been higher,” said Jonny Caldwell, co-head of asset management at Trovio, which focuses on traditional and digital assets. “Banks look for details to demonstrate the strength of businesses.”

Caldwell said he is aware of several crypto funds looking to the Middle East and Swiss banks for alternative banking partners.

In the Middle East, Dubai has tried to attract investment with pro-crypto policies. Jurisdictions such as Hong Kong and Europe have also become more enticing thanks to their regulatory efforts and friendlier authorities. In the UK, BCB Group is looking to attract customers to its digital asset outfit payments network.

“I imagine more crypto institutions will start exploring the Asian banking system,” said Adrian Lai, founder of Newman Capital in Hong Kong, which runs a $50 million fund investing in web3. The term “web 3” refers to a vision of a decentralized internet built around blockchains, crypto’s underlying technology.

But even if lenders like Chinese banks in Hong Kong start taking crypto accounts, it won’t be like Silvergate or Signature, where the digital-asset industry was a central part of their business, said Lucy Gazmararian, founder and managing partner of venture fund Token Bay Capital.

“Crypto was their main business,” she said. “We don’t have that in Asia that I’m aware of.”

–With the assistance of Zheping Huang and Yueqi Yang.