Original article by Erin Griffith and David Yaffe-Bellany, The New York Times
Original translation: Luffy, Foresight News
Early last year, Ryne Saxe began grappling with demands from the banks that were working with his San Francisco startup, Eco. The banks had a slew of new compliance and reporting requirements that Eco had to comply with.
What was the problem? Eco is a cryptocurrency company, part of an industry that has come under intense scrutiny from regulators. Banks said they were under pressure from government agencies to comply with new guidelines regarding cryptocurrency clients. Eco’s payroll service, Bill.com, subsequently cancelled the company’s account, citing the new policy, Saxe said.
Ryne Saxe, founder of San Francisco cryptocurrency company Eco, wearing a sweatshirt and baseball cap with buildings in the background. Banks have required Eco to comply with a series of new compliance and reporting requirements.
After eight months of struggling, Saxe decided to shut down the Eco app and change his business plan to make it less dependent on working with the bank. Eventually, Bill.com reinstated his account.
“It was like being in hell,” Saxe said. “Our banking business was winding down.”
For years, cryptocurrency startups like Eco have struggled to open and keep bank accounts in the U.S., leading a host of entrepreneurs to cry foul. They have angrily accused the government of orchestrating a campaign to suppress the cryptocurrency industry, calling the crackdown unconstitutional and un-American. They have sued bank regulators and raised the issue with members of Congress.
That discontent has now reached a head. Last month, Marc Andreessen, an influential venture capitalist and founder of Andreessen Horowitz (a16z), raised the issue on Joe Rogan’s podcast, which has more than 10 million listeners. Andreessen accused Democrats of “intimidate” cryptocurrency startups by pressuring banks not to work with them. These concerns have been further amplified by Elon Musk and cryptocurrency industry executives such as Coinbase CEO Brian Armstrong and Gemini co-founder Tyler Winklevoss, who said the government and banks are “doing evil.”
Brian Armstrong stands in an office with glass partitions and potted plants, his chin resting on his hand and looking away
Complaints about “debanking”—exclusion from the banking system—sometimes miss key context or exaggerate the impact on startups. But cryptocurrency executives have turned the issue into a political weapon at an opportune moment in the industry’s development.
Under new President Donald Trump, an outspoken Bitcoin enthusiast, the crypto industry is expected to see a shift in policy winds that could create a more relaxed regulatory environment for cryptocurrency companies. Last week, Trump appointed cryptocurrency supporter and venture capitalist David Sacks as his White House AI and Crypto Czar.
Cryptocurrency industry executives have begun urging Trump and Sacks to make personnel selections and implement policies to improve the status of the crypto industry in the United States. Getting the banking system to stop suppressing cryptocurrency startups is one of their top priorities.
No one has kept a count of how many cryptocurrency companies have been unable to get or keep bank accounts, but Andreessen, founder of venture capital firm a16z, said the problem has affected 30 tech founders his firm has backed. (The firm has more than 100 cryptocurrency startups in its portfolio.)
Last year, three top financial regulators sent letters to banking institutions warning them to be cautious when dealing with cryptocurrency companies. Nic Carter, founder of cryptocurrency investment firm Castle Island Ventures, who has written extensively about debanking, called the government and bank actions “Operation Choke Point 2.0.” (Note: Operation Choke Point refers to an enforcement action launched by the U.S. Department of Justice in 2013 during the Obama administration to crack down on companies suspected of fraud and money laundering, but in practice it affected many innocent businesses.)
Marc Andreessen sitting and talking, gesturing with his hands, wearing a headset microphone
Austin Campbell, an adjunct business professor at New York University who has consulted for cryptocurrency companies, said the result of this action was devastating for business.
Still, many of the cryptocurrency companies that lost bank accounts have managed to open new ones. The regulator’s warning states that banks are “neither prohibited nor prevented” from providing services to any particular category of customers, and many banks may have good reason to abandon cryptocurrency customers. The cryptocurrency industry has a long record of scams, frauds and high-risk financial practices that have harmed consumers and prompted endless lawsuits and criminal prosecutions.
Eswar Prasad, an economist at Cornell University, said: Serving cryptocurrency companies exposes traditional commercial banks to reputational, regulatory and financial risks. Banks are generally reluctant to accept customers with questionable financial conditions such as cryptocurrency companies.
A spokesman for financial platform Bill.com declined to comment on Ecos case and said the company notifies any customers who violate its service policies. A representative for the Office of the Comptroller of the Currency, a regulator responsible for overseeing the banking industry, said the agency has not directed any bank to open, close or maintain individual accounts.
Fifteen years ago, cryptocurrency pioneers weren’t interested in working with banks. They wanted to create a new type of money that didn’t require banks or other intermediaries to store funds and process transactions. The technology was supposed to provide a refuge for those who had trouble accessing traditional banking services.
But as cryptocurrency has grown into a trillion-dollar industry, cryptocurrency companies have become increasingly dependent on existing financial infrastructure. They need bank accounts to pay employees, accept money from venture capital firms and convert cryptocurrency into dollars.
Cryptocurrencies’ role in illicit finance, from drug trafficking to extortion payments, had aroused banks’ suspicion long before regulators began cracking down. Megan Knab, a technology professional in New York, became interested in cryptocurrencies in 2017 and linked her digital wallet at the cryptocurrency exchange Gemini to her account at a major bank. Soon after, she said, she received a one-sentence email saying her bank account had been closed.
“I had to go to a physical bank branch and withdraw cash to get my balance out,” Ms. Knab said.
Sadie Raney, CEO of crypto hedge fund Strix Leviathan, said her payroll provider Xero blocked payments without warning when she first tried to pay her employees in 2017. “The company told me they had a blanket ban on cryptocurrency companies,” she said.
“It’s been a nightmare,” Raney said. (A Xero spokesperson said the company couldn’t comment on individual cases but still has clients “related to cryptocurrency.”)
Ultimately, cryptocurrency companies turned to a small group of banks that were keen to work with the industry. The most notable is Silicon Valley Bank, which specializes in serving tech startups. Signature Bank and Silvergate Bank are also popular with cryptocurrency companies.
But in 2022, the collapse of the FTX cryptocurrency exchange put the banking industry under pressure to stop working with cryptocurrency companies as the government began to crack down on cryptocurrencies, forcing some crypto startups to leave the United States. Shortly after the FTX collapse, federal banking agencies and the White House issued guidance encouraging banks to separate high-risk digital assets from the banking system.
“The guidance is too broad and too vague,” Katie Haun, founder of cryptocurrency investment firm Haun Ventures, said of the guidance. “One bank told one of our portfolio companies, ‘This business is not worth the risk.’ ”
Two months later, Silicon Valley Bank collapsed, setting off a nationwide banking crisis, followed by the bankruptcy of Silvergate and Signature.
Konstantin Richter, the owner of cryptocurrency company Blockdaemon, was also caught up in the crisis the week Silicon Valley Bank collapsed. He said three-quarters of his companys assets were stored at the bank and he needed to find another place to store them. He planned to move the funds to a separate account at Bank of America.
Then he got a call from Bank of America: the bank was closing Blockdaemons account without giving adequate explanation.
“I felt violated,” he recalled. “It felt so unfair.” (The bank declined to comment.)
Richter eventually moved all of the company’s money to Silicon Valley Bank after it changed hands. But relying on one bank can be riskier than spreading your assets across multiple institutions.
The point of cryptocurrency “is to bank the unbanked, and then all of a sudden you’re unbanked,” Richter said.
Many cryptocurrency entrepreneurs who lost their bank accounts found backup accounts, while others were forced to leave the United States in search of stable banking relationships or resorted to makeshift and shaky solutions, using cryptocurrencies and offshore debit cards to conduct business.
However, there is light at the end of the tunnel. The cryptocurrency industry has been on an upward trend since Trump won the election last month. This month, the price of Bitcoin even soared to over $100,000, a long-awaited milestone.
Venture capitalist Nic Carter said he has discussed past banking issues with lawmakers and he hopes to pass legislation to protect the rights of cryptocurrency companies. Rep. French Hill, R-Arkansas, a member of the House Financial Services Committee, called on Congress to investigate how bank regulators are handling cryptocurrency companies.
The crypto industry’s talking points are now widely adopted in Washington. With Republicans in control of Congress, Hill wrote on social media this month that “we will be able to stop, reverse and investigate Operation Choke Point 2.0.”
