U.S. lenders are distancing themselves from crypto companies in the wake of increased scrutiny of the industry by regulatory agencies in the country.
These measures could force more crypto businesses to move offshore to jurisdictions with friendlier cryptocurrency regulations.
Crypto firms in the U.S. are in danger of becoming largely unbanked. This is amid the growing trend of U.S. lenders refusing to offer services to such companies. This refusal of service comes as a fallout of the FTX collapse which has seen a greater scrutiny on the industry in recent times.
U.S. banks were beginning to warm up to crypto. Several lenders already offered custody services and others were making plans to enable crypto trading for their customers.
Now, it appears that such gains for the industry may be facing significant headwinds. Banking regulators have warned banks about their concerns regarding the crypto industry.
Lenders like New York’s Metropolitan Commercial Bank and Signature Bank have recently cut ties with crypto customers including exchange giant Binance. These actions have further reduced access to payment onramps and offramps for crypto firms which are necessary for these companies to do business.
Banks cutting ties with crypto companies in the U.S. has also come amid an upturn in regulatory enforcement actions against industry players. The Securities and Exchange Commission (SEC) has gone on the offensive against several crypto businesses since the start of the year.
The enforcement actions covered market segments like staking and stablecoins. There are even concerns that the SEC’s actions are part of a broad-based effort to squeeze the U.S. crypto ecosystem.
Moving away from USD-backed trading
U.S. crypto firms may need to seek out friendlier jurisdictions in the wake of being unbanked in the U.S. However, their migration overseas might not be the only change caused by this trend. Indeed, exchanges might have to prioritize other fiat currencies as backing for crypto trades.
The U.S. dollar dominates crypto trade.
Tether, the largest stablecoin in the industry, has most of its value denominated against the dollar. Sustained regulatory pressure from U.S. regulators may see crypto participants begin to favor trades being denominated in other currencies.
Some crypto personalities have faulted the position taken by U.S. regulators. The emerging consensus is that such actions will dampen the country’s role in the emerging industry.