Cryptocurrency and fintech companies are increasingly exploring the option of securing bank charters, a strategy to help expand their operations under the Trump administration, according to a report from Reuters. Industry executives have noted the shift, which comes as the administration has proven to be more industry-friendly, particularly when compared to past regulatory bodies that were slow to approve such licenses.
The growing interest in bank charters signals a new approach to growing crypto companies. However, despite the interest, it remains uncertain how many companies will ultimately follow through with their applications. Establishing a bank can be a costly process, with startup costs running into tens of millions of dollars. Still, the advantages of being a chartered bank — including greater credibility with the public — are seen as key incentives.
Historical data shared by Reuters reveals that between 2000 and 2007, 144 bank charter applications were approved annually. However, this number dramatically dropped to only five per year from 2010 to 2023, with the 2008 financial crisis marking a pivotal shift that led to stricter scrutiny of banks.
A Regulatory Shift Under Trump’s Leadership
Under President Trump, there has been a noticeable openness to innovation in the financial sector, particularly with regard to cryptocurrency. Notable actions taken by the Trump administration include the creation of a crypto working group, an executive order to establish a national strategic Bitcoin reserve, and hosting the first-ever White House crypto summit.
Though it’s rare for cryptocurrency companies to seek traditional bank charters in the U.S., a few companies have managed to secure approval in recent years. For instance, crypto exchange Kraken obtained a bank charter in Wyoming in 2020, Anchorage Digital Bank received a charter in January 2021, and crypto lender Nexo bought a stake in a holding company that owns a federally chartered bank in 2022.
While the process of applying for a bank charter is complex and involves challenges such as compliance with Anti-Money Laundering (AML) laws and the Bank Secrecy Act, there are clear financial benefits to obtaining one. The most significant advantage is the ability for companies to accept deposits, which lowers the cost of capital.
Despite the potential benefits, the centralization and increased regulatory oversight of having a bank charter can contradict the decentralized ethos at the core of the cryptocurrency industry. This creates a dilemma for companies that value the principles of decentralization but also recognize the practical advantages that come with being a regulated financial entity.
What The Author Thinks
While the push for cryptocurrency companies to secure bank charters is understandable from a business perspective, it represents a growing integration of traditional financial systems into a space that was originally built on the idea of decentralization. While the benefits, such as lowered capital costs, are evident, crypto companies must carefully consider whether these regulatory shifts align with their founding values. Over time, as more crypto firms adopt traditional financial structures, the line between “crypto” and traditional finance may blur, diminishing the very uniqueness that gave rise to blockchain and cryptocurrencies in the first place.
Featured image credit: David McBee via Pexels
Follow us for more breaking news on DMR