Written by: Joel Khalili, (Wired) Magazine Reporter
Translated by: Saoirse, Foresight News
At the beginning of last year, New York-based cryptocurrency entrepreneur Azeem Khan had just raised $19 million in seed funding for his startup Morph and was looking for a place to store the money. Before applying for a US bank account, he consulted a lawyer, who replied, 'It is absolutely impossible to do this without obstacles.'
It turns out that even such a pessimistic forecast was overly optimistic. After being rejected by multiple US banks in six months, Khan had to give up. He ultimately chose to deposit some funds without interest in a bank in the Cayman Islands and converted the rest into cryptocurrency assets, which were managed by a third-party custodian.
For a long time, founders of cryptocurrency companies have had similar experiences: US banks either refuse to provide them with loans or checking accounts, or suddenly freeze their accounts. Without banking partners, cryptocurrency companies find it difficult to operate. They cannot conveniently conduct service transactions through US dollars, securely store investor funds and earn interest, or even pay employee salaries and vendor invoices. 'This is a predicament that the entire industry is well aware of,' Khan said.
Just over a year later, the situation took a turn. Since Trump returned to the White House in January this year, promising to end the so-called 'discrimination' against cryptocurrency companies, several US fintech companies, including Meow, Mercury, and Brex, have been competing to provide banking services to cryptocurrency firms. Khan recently raised $25 million for his new crypto startup Miden and revealed that he has become a key target for these fintech companies.
This shift has made it much easier for cryptocurrency companies to register, recruit, and conduct business in the US, aligning with Trump's plan to build 'the global cryptocurrency capital.' However, their fate still depends on the political winds. While the Trump administration has brought a more relaxed policy atmosphere, there are still no legal texts to guarantee that cryptocurrency companies will receive long-term banking services.
Although the current government's attitude is relatively friendly, the relevant policies have not been written into law. There are no new regulations to ensure that changes in administration will not reverse the industry's situation again, Khan admitted.
During the Biden administration, the cryptocurrency industry has felt frustrated due to repeated difficulties with banks, with industry insiders crying out, 'This is a conspiracy.' They claim that the federal government is deliberately trying to exclude cryptocurrency companies from the banking system, attempting to stifle the entire industry.
Cryptocurrency venture capitalist Nic Carter is a leading advocate of this narrative, referring to the so-called 'discrimination campaign' as 'Operation Chokepoint 2.0.' This name originates from an anti-fraud initiative during the Obama administration: reports indicated that under this initiative, US officials had urged banks to avoid doing business with the porn industry, payday loans, and other sectors not favored by policy.
After the Trump administration took office, several subcommittees of Congress held multiple hearings on the so-called 'Operation Chokepoint 2.0.' Then, in March this year, Senate Republican members introduced the Financial Institutions Reform, Modernization, and Relief Act (FIRM Act), aiming to prohibit banks from considering 'reputational risk' when reviewing account applications to curb the so-called discriminatory practices. However, the bill has yet to proceed to a voting stage.
For cryptocurrency companies, the current shift in policy atmosphere is undoubtedly favorable. While they face fewer obstacles in obtaining overseas bank accounts (many located in the Cayman Islands or Switzerland), overseas accounts have numerous drawbacks compared to US domestic accounts: they do not generate interest on deposits, the settlement process with US domestic counterparties is cumbersome, account fees are high, and they cannot enjoy the deposit insurance provided by the Federal Deposit Insurance Corporation (FDIC), which insures up to $250,000 per account holder.
Insiders say that although well-known banks like JPMorgan Chase have begun internal testing of cryptocurrency technology, most are still unwilling to provide accounts for cryptocurrency companies. 'The major banks that are well known to the average person have no connection to the cryptocurrency industry,' stated David McIntyre, COO of startup DoubleZero, which focuses on developing infrastructure for cryptocurrency networks.
This situation, however, has created opportunities for small fintech companies, allowing them to expand their deposit base by attracting clients from the cryptocurrency industry. 'Nowadays, entrepreneurs in the cryptocurrency sector basically choose platforms like Mercury or Meow,' Khan said. 'Meow is especially proactive; as soon as they see a cryptocurrency company announce financing, they will immediately reach out to its founders.'
These fintech companies often market themselves as 'crypto-friendly,' offering integrated services like stablecoin transfers and are not as rigid as traditional financial institutions. Take Meow, for example; its 30-something CEO Brandon Arvanaghi runs his LinkedIn page like a TikTok account, complete with short videos.
The technology of these US fintech companies is far more advanced than any random unknown bank in the Cayman Islands or Switzerland. Whether in platform functionality, customer service, or various other aspects, they are superior, McIntyre commented.
In response to interview requests for this article, Mercury declined, while Meow and Brex did not respond.
In fact, these fintech companies play the role of 'software layer': relying on traditional banks with US licenses to conduct business, responsible for user interface development and customer expansion, while deposit management is handled by partner banks. Specifically, Meow collaborates with Grasshopper Bank, while Brex and Mercury have established partnerships with several banks. This model was widely adopted in the US during the COVID-19 pandemic, which forced banks to accelerate the transition to digital services.
In an ideal scenario, this model allows banks to access more advanced technology, said Craig Timm, senior director of anti-money laundering at ACAMS. ACAMS primarily conducts financial-related certification programs, and Timm has served as a financial crime expert at Bank of America and the US Department of Justice. 'For fintech companies, this means they can focus on their areas of expertise—product development, marketing, and expanding new customers—without having to spend a fortune and energy obtaining bank licenses (a process that is both complex and costly).'
However, such collaborations often require fintech companies to comply with rules set by partner banks, including restrictions on the types of clients they can serve. For example, Mercury's spokesperson stated that the company cannot provide account services to cryptocurrency firms (including exchanges) that hold client funds.
They are merely layering a shell on top of someone else's bank, McIntyre, who previously worked at Brex, explained. 'They must adhere to the underwriting requirements, regulatory regulations, and specific standards for client access set by partner banks.'
Timm stated that in the past, expanding into new business areas (such as cryptocurrency-related businesses) has always been a source of friction between fintech companies and partner banks. Fintech companies are focused on rapid expansion, while partner banks bear the ultimate responsibility for maintaining compliance with licensing regulations (including strict anti-money laundering controls).
The failure of such collaborations is often due to a lack of consensus between the parties, Timm added, sometimes there may also be situations of 'inconsistent risk preferences.'
This places cryptocurrency companies in an uncertain position: although fintech companies are currently eager to provide them with US bank accounts, the partner banks behind them may revoke their authorization in the future.
When asked whether partner banks are committed to providing long-term services for cryptocurrency clients, both Meow and Brex did not respond. Mercury's spokesperson Nic Corpora stated that the company maintains close cooperation with partner banks to ensure alignment in risk preferences, allowing for optimal long-term support after onboarding clients.
This risk seems distant during the presidency of someone who appointed regulators supportive of cryptocurrency development and promised to end the so-called 'Operation Chokepoint 2.0.' But what about after Trump leaves office?
From a risk management perspective, it is unwise for a company like ours to rely solely on accounts from US fintech companies, McIntyre said. 'When the government changes, the interpretation of the law also changes, but the text of the law itself does not change.'