Bitcoin’s Banking Struggle is Real
It is no secret that banks love the blockchain but hate bitcoin. Despite the irony that one would not exist without the other, it is the threat that a decentralized global digital currency that allows anyone to be their own bank possess to the current banking system that causes the banking industry’s opposition to the world’s leading cryptocurrency.
The result of banks’ dislike of the cryptocurrency bitcoin is that bitcoin startups, as well as bitcoin users, are regularly faced with account closures and banking restrictions.
Wells Fargo vs. Bitfinex and Tether
The most recent example of a bank no longer wanting to bank bitcoin startups is the case of U.S. bank Wells Fargo and Hong Kong-based cryptocurrency startups Bitfinex and Tether.
As BTCManager reported on April 9, Bitfinex parent company, iFinex Inc., and Tether Ltd. filed a lawsuit against Wells Fargo stating that the bank is preventing their customers from accessing their funds worth around $180 million. The two firms alleged that Wells Fargo prevented money transfers from a number of Taiwanese banks holding accounts containing their customers’ funds. Wells Fargo’s move to block outgoing U.S. dollar transfers was conducted without notifying the two startups.
Both iFinex Inc. and Tether Ltd. later withdrew the lawsuit, most likely as they realized that banks have the power to block transactions at their discretion and that they would probably not succeed in the courts. A Bitfinex spokesperson, however, commented on the matter saying: “We voluntarily dismissed our case … and find that we’re best served focusing our efforts on existing and developing relationships.”
The case of Wells Fargo, Bitfinex and Tether was not an isolated case of a bank making life harder for bitcoin startups. In the United Kingdom, for example, there is a long history of banks not wanting to play ball with cryptocurrency companies.
The UK’s Bitcoin Banking Problem
In the United Kingdom, bitcoin startups are faced with regular account closures from the country’s financial institutions. According to Forbes, around a dozen of bitcoin startups have faced account closures at British banks often with no notice and little explanation as to why.
Former UK-based bitcoin exchange Britcoin (which later rebranded as Intersango) had repeated issues with their banking provider, which led them to close their operations as they were not able to find a bank that was willing to cooperate with them. In a statement on their now defunct website, they said: “Bridging the gap between the conventional banking system and bitcoin is a challenging and expensive task. We have had many issues dealing with the conventional banking system; missing transfers, crippling technical issues, accounts frozen without warning, and even accounts closed without warning.”
Other examples of British bitcoin startups that shut their doors due to the unwillingness of banks to service them include former cryptocurrency exchanges Bit121 and In Bitcoin We Trust. Both suffered the same fate as Britcoin.
Individual bitcoin users have also had their fair share of problems with the UK’s banking system. For example, in 2015, a student who used his bank account to trade bitcoins had his account shut down with no reason given as to why he had to take his business elsewhere. He, however, was not alone in his endeavor.
In March 2017, the UK-based bitcoin exchange Bittylicious announced on Twitter that the bank Santander is closing down bank accounts of anyone who sends money to bitcoin exchanges using their bank accounts. As in most cases of bitcoin-related account closures, Santander is not willing to give valid reasons for the account closures.
Hard to Be Banked as a Bitcoin Startup Down Under
In Australia, at least 17 bitcoin startups have reportedly had their accounts shut down by Australian banking institutions, which has even led the Australian Competition and Consumer Commission to investigate the matter in late 2015 amid concerns that banks are engaging in a collaborative effort to block potential emerging competition.
Australian Senator Matthew Canavan said regarding the matter that “… banks wield great influence in the market, and they have a great responsibility under our laws not to misuse that position. I am not sure if that has happened in this instance, but there is no doubt that digital currencies do pose a threat to the business of banks.”
Bitcoin’s Banking Problems are Global
Unfortunately, bitcoin’s banking challenges are not isolated to the US, UK, and Australia alone. In Poland, for example, local bitcoin exchange BitMarket had its account abruptly closed by leading Polish financial institution PBH due to the connection to cryptocurrency-related business as its legal team was able to discover later.
Furthermore, in East Africa’s largest economy, Kenya, bitcoin startups can currently not open business bank accounts at all as the country’s central bank has urged local banks not to bank with cryptocurrency-related startups following the issuance of a public warning against the use of the digital currency bitcoin. This move comes as an attempt to stump the growth of bitcoin as it could potentially turn into a competitor to the country’s widely-used but high fee charging mobile money service M-Pesa.
The Struggle is Real
Of course, the irony is not lost on anyone that the digital currency that adopted the slogan “be your own bank” now has a very real banking problem.
If you are launching a startup today that has the word bitcoin in it or that transacts in cryptocurrencies, you need to think twice before choosing a financial institution to bank with. If you are not refused an account in the first place, a potential account closure could be just around the corner with the wrong banking institution.
While it understandable why banks feel that their business could be threatened by cryptocurrencies, the reality is that banks would actually be much better off collaborating with bitcoins startups to develop cryptocurrency-related business solutions for their customers as opposed to making a futile attempt at blocking cryptocurrency innovation by cutting off access to traditional banking.
The future is coming and the banks that do not realize that digital currencies will be part of that will end up falling behind the pack.