Crypto Companies Pursue Bank Charters Under Trump Administration: A New Era of Opportunity?

In a notable shift, cryptocurrency and fintech companies are increasingly seeking bank charters, aiming to expand their operations and gain legitimacy under the Trump administration. According to a report by Reuters, several executives from within the industry have revealed that they are exploring the possibility of securing these licenses, seeing it as a way to grow their businesses in a regulatory environment that is perceived as more industry-friendly than previous administrations.

This surge in interest comes at a time when bank charter approvals have significantly dwindled. Since the financial crisis of 2008, which introduced heightened scrutiny and tighter regulations on banks, the number of charter applications approved annually has sharply decreased. From an average of 144 approvals per year between 2000 and 2007, the number has dropped to just five approvals per year between 2010 and 2023. With such limited opportunities for new banks, crypto companies are beginning to view this as a unique window for growth, thanks to the more accommodating stance of the Trump administration.

A Welcoming Environment for Crypto and Fintech

The Trump administration has been seen as relatively open to innovation within the financial sector, particularly in the cryptocurrency space. Since President Trump took office in January 2017, he has signaled a forward-thinking approach to the industry. This includes the creation of a crypto working group, the signing of an executive order to establish a national strategic Bitcoin reserve, and hosting the first-ever White House crypto summit. This attitude has contributed to an environment where cryptocurrency companies feel more confident pursuing traditional banking licenses.

However, despite growing interest in acquiring bank charters, it remains unclear how many crypto companies will ultimately follow through on these applications. The process of starting a bank in the U.S. is expensive, costing tens of millions of dollars in capital, and not all companies are prepared to make such a significant financial commitment. Nevertheless, securing a bank charter brings with it increased credibility with the general public and regulatory bodies, providing a powerful incentive for companies seeking to expand their reach.

Crypto Companies That Have Pursued Bank Charters

While it is not common for cryptocurrency companies to apply for bank charters in the U.S., a few notable examples from the 2020s illustrate that it is not entirely out of reach. Kraken, a leading cryptocurrency exchange, was approved for a bank charter in Wyoming in 2020. In 2021, Anchorage Digital Bank received its own charter, marking another major step forward for crypto firms looking to operate in a more traditional financial environment. Additionally, in 2022, crypto lender Nexo acquired a stake in a holding company that owns a federally-chartered bank, further highlighting the increasing interest from the industry in pursuing traditional banking licenses.

These companies’ efforts to secure bank charters are part of a broader trend in which crypto firms are seeking to integrate more deeply into the financial system. By obtaining a bank charter, these companies can benefit from regulatory legitimacy and access to banking services that would otherwise be restricted.

Challenges in Securing Bank Charters

Despite the potential rewards, applying for a bank charter comes with significant challenges. Crypto companies face stringent regulatory hurdles, including compliance with anti-money laundering (AML) laws and the Bank Secrecy Act (BSA), both of which require extensive oversight and record-keeping. These regulations can be burdensome and costly to implement, especially for companies that were built on the ethos of decentralization and minimal regulation.

Furthermore, the process of securing a charter requires meeting the same high standards set for traditional financial institutions. This includes demonstrating financial stability, passing extensive background checks, and ensuring robust risk management protocols. These requirements can pose a challenge for companies in the crypto industry, where decentralization and autonomy are central principles.

Financial Benefits of a Bank Charter

For crypto companies, the most compelling reason to pursue a bank charter is the potential to lower the cost of capital by accepting deposits. In the traditional banking world, deposits are a key source of capital, providing banks with the liquidity needed to lend and invest. By securing a charter, cryptocurrency companies could gain access to this valuable resource, which could help fuel further growth and innovation. Additionally, being recognized as a bank could enhance a crypto company’s reputation and make it more attractive to investors, partners, and customers.

Conclusion: A Turning Point for Crypto Companies?

As the crypto and fintech sectors continue to mature, the possibility of obtaining a bank charter under the Trump administration presents an intriguing opportunity. While the regulatory hurdles and financial costs of obtaining a bank charter are significant, the benefits of increased credibility, access to deposits, and the legitimacy it provides could outweigh the challenges for some companies. Whether this trend will continue and how many companies will successfully navigate the application process remains to be seen. However, one thing is clear: the crypto industry is looking to integrate more fully into the traditional financial system, and securing a bank charter is one of the most promising avenues for achieving that goal.