The Bank Every Crypto Entrepreneur Needs to Know About | Crypto Law Insider
By Dean Steinbeck on The Capital
One day, Kraken CEO, Jesse Powell got a message from one of his employees saying that his paycheck had bounced.
It seemed strange to Jesse because there were definitely funds in the account. So he called up his bank to check.
As it turns out, the bank closed all of their company bank accounts with just five days’ notice to find an alternative. But of course, they’d sent him the notice through snail mail, so it didn’t get to him until after the accounts were closed.
Just like that. His business was left high and dry and he had to scramble to find alternatives.
Unfortunately, the same thing happened with those alternative accounts as well. From Chase to Bank of America to PayPal, he couldn’t keep anything open.
I’d like to say that this is a rare incident, but I’m sure every entrepreneur in the crypto space has a similar story to tell.
I experienced this first hand trying to manage banking relationships for Zen Blockchain Foundation, the non-profit organization behind Horizen.
It was a headache just getting our accounts set up. On top of that, because we have a remote, international team (as do most crypto projects), we faced all kinds of issues when sending out monthly payments.
Every month, the banks needed to double and triple confirm who we were sending funds to. Blocking transfers if we couldn’t provide the right documentation. It was a nightmare. The bankers didn’t understand our business, so they didn’t understand our needs.
And then, when they finally took the time to learn about our business and realized that we were dealing with crypto, they shut down our accounts.
The bankers didn’t care about the consequences for us. They didn’t give a reason. They didn’t ask for more documentation. They literally just closed the accounts giving us a few weeks to move funds.
I’ve written about the struggles of banking for crypto companies and individuals for years. But sadly, I didn’t have any real solutions to offer Insiders… until now.
Now, I’m excited to be the bearer of good news.
We have finally found a solid banking partner. A highly-reputable traditional bank that embraces crypto and has dedicated itself to serving the industry.
This is a bank that every crypto entrepreneur and crypto-focused institutional investor should know about.
Read on in today’s article to learn about the crypto bank and how it’s opening access to traditional banking for crypto.
How Silvergate is positioning itself to become the leading bank in crypto
While banks across the world are closing their doors to crypto entrepreneurs and traders, one bank has chosen instead to fling its doors wide open: Silvergate Bank.
The bank’s CEO, Alan Lane, first heard about Bitcoin in 2013. Unlike most traditional bankers and investors, who either scoffed at crypto or were afraid of it, Lane was curious. He bought some BTC and took some time to learn about it.
It didn’t take him long to realize the immense potential of digital currency, and he quickly took action. Within just a few months, he pivoted the entire bank’s business model to focus primarily on crypto businesses, exchanges, and institutional investors.
Now, Silvergate Bank is aggressively trying to bring on as many crypto clients as possible. And in the process, it’s proving to disrupt the financial system almost as much as the crypto companies it serves.
How is Silvergate disrupting the system?
Well, to appeal to crypto companies, the bank developed what it calls the Silvergate Exchange Network (SEN). This enables clients to instantly make deposits or transactions between accounts on the network.
The network is integrated with multiple exchange platforms’ APIs and is designed to work 24/7. This means that bank depositors with Silvergate can make transactions and trades even on nights and weekends when the bank’s offices are closed.
Finally, a bank that’s caught up with the 21st century.
This provides crypto companies with a de facto clearinghouse and allows them to bypass the Fedwire system through which most banks settle transactions.
On top of this, the bank is even experimenting with additional services tailored for the industry. Their SEN Leverage service, for example, allows traders to put up Bitcoin as collateral for fiat loans, which they can use to buy more Bitcoin.
This isn’t a new concept. It’s similar to margin lending in traditional markets and what is offered by SALT and other crypto lending platforms. But to have a traditional bank offering this service for crypto investors is something completely unheard of.
Silvergate Bank’s Due Diligence
My personal experience setting up accounts for Zen Blockchain Foundation at Silvergate was like a breath of fresh air.
They provided us with a reasonable list of due diligence items. We provided the documentation and they opened the account. As simple as that.
They did come back once with some intelligent follow-up questions on some of the documents. But when we responded with sufficient evidence they made no further issues.
This is a shocking contrast to our experience with other US banks, which as I’ve mentioned before don’t give you any chance to contest. Most banks have simply decided that their business model doesn’t include crypto companies, so once you’ve been blacklisted — you’re out. There’s nothing you can do about it.
It’s also a completely different experience than I’ve had with banks in other countries. Take Panama, for example, where I’ve had some of the most frustrating banking experiences imaginable.
Panama has a false reputation abroad for being lax on KYC AML, but the reality is that it’s incredibly difficult to open a corporate account.
In order to open a bank account here, they give you an endless list of due diligence requirements. You send them the documentation they ask for and think that’s it. But then, they come back with all kinds of uninformed questions and further documentation requests. All just to show how little they understand about you and with zero intention of helping you open an account.
If by some miracle you do open the account, they will frequently block payments you send or receive from abroad, making it impossible to support an international team and customer base.
Unlike these US and foreign banks, Silvergate gets it.
The bankers all know and understand crypto. Best of all, they don’t treat you like a criminal for being involved with blockchain.
Silvergate bank is very careful with its due diligence, because it knows that accepting companies that turn out to be frauds would be very damaging to both its reputation and its bottom line. The key is that its due diligence is focused on relevant information that would let it assess its customer.
At the end of the day, the bank actually wants to work with you.
What does this mean for Crypto Law Insiders?
If you’re an entrepreneur in the crypto space, do NOT waste your time with Bank of America, Wells Fargo or any other mainstream bank.
If you do, you will be shut down sooner or later. And then you will have to deal with the headache of rushing to set up an alternative.
Just skip the hassle and go straight to what works: Silvergate Bank.
Having a reliable banking partner is a huge asset for your business. You really don’t want to take it for granted.
Let me be clear that I’m not getting any referral fees from Silvergate Bank for this article. I’m just so happy with my experience that I want as many other founders as possible to know about it.
For Insiders wondering about how this impacts the bigger picture, know that Silvergate Bank is playing a critical role in helping crypto move into the mainstream.
It’s a matter of when, not if other banks will follow. Crypto is too lucrative of an industry for other banks to stay out of it. They’re just waiting to see that it’s safe.
Already J.P. Morgan has changed its tune toward crypto banks, as seen with its recent acceptance of Gemini and Coinbase.
This is a great move. But as a personal note, at the end of the day, who would you prefer to bank with? A bank whose CEO said that Bitcoin was ‘stupid’ and a ‘fraud’, and that he would fire any employee he caught trading it?
Or a bank whose CEO recognized that the crypto industry needed banks before anyone else and risked his bank and reputation to serve this need?
I know my answer.
Dean Steinbeck
Dean Steinbeck, Managing Director of Crypto Law Insider, is the leading authority on legal issues related to cryptocurrency and blockchain technologies. Learn more
Originally published at https://cryptolawinsider.com on June 23, 2020.
