Banking
Getting a business bank account for a blockchain organization anywhere in the world is particularly difficult, even in jurisdictions like Switzerland that are known for being relatively open to cryptocurrencies. During the bear market of 2018, many banks severed ties with cryptocurrency businesses due to fears surrounding money laundering and the risks associated with ICO sales. For most banks, the economics of servicing blockchain businesses did not make sense: high risk but low revenue.
Challenges with Traditional Banking
Most high street banks completely stopped working with cryptocurrency companies. Even in Switzerland, where many blockchain businesses operated, banks were reluctant to take on clients in the crypto space. The perception was that the risks associated with money laundering, regulatory uncertainty, and the overhead of due diligence were not worth the limited financial gains.
In some cases, private banks, such as those in Liechtenstein, were willing to work with blockchain businesses. However, the fees were much higher, allowing these banks to justify the additional due diligence and compliance requirements.
Some developers resorted to not mentioning blockchain at all when applying for bank accounts, simply to avoid the automatic rejection that often came with being associated with the crypto industry. There was some positive change during the bull market of 2020 and 2021, with more banks becoming willing to accept cryptocurrency clients. However, even during these times, banking remained a significant challenge for blockchain teams.
Practical Solutions
Given the challenges with traditional banking, blockchain organizations have had to explore alternative solutions to manage finances:
Paying in Stablecoins: One practical approach was to pay employees in stablecoins, such as USDT or USDC, and let them convert to their local fiat currency. It has always been easier for individuals to convert cryptocurrencies to fiat and deposit into their personal bank accounts compared to businesses.
Crypto-Friendly Banks: A handful of crypto-friendly banks emerged over time, such as Silvergate and Signature in the U.S., and Sygnum and SEBA in Switzerland. These banks specifically catered to blockchain businesses, but availability was often limited by the banks' capacity to take on new clients. Note that this is not a recommendation or endorsement of the aforementioned banks.
Current Landscape
Improving Acceptance: The situation is slowly improving, with more banks around the world starting to offer services to blockchain companies. However, challenges remain, and access to traditional banking can still be limited, particularly for startups without significant funding or connections.
Jurisdiction Matters: Where you incorporate your token-issuing entity or development company can also affect your banking options. Some jurisdictions are more open to cryptocurrency businesses and can make the process of opening a bank account easier.
Considerations
Expect High Fees: If you manage to open an account with a bank that accepts blockchain clients, be prepared for higher fees. Banks that are willing to work with blockchain companies often charge premium rates to cover the perceived risks and compliance costs. For example, private banks can charge $5,000+ per quarter ($20k+ per annum).
Compliance and Transparency: Being transparent with your banking partners about your activities can help in building a long-term relationship. Work closely with legal advisors to ensure that your compliance practices are sound, and be prepared for thorough due diligence.
The challenges associated with banking for blockchain businesses require creativity and adaptability. While the landscape is improving, companies still need to be prepared for potential obstacles and have alternative strategies in place for managing funds and paying employees.
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