At the beginning of June 2020, reports emerged that some 4,000 Chinese bank accounts had been frozen by state authorities for cryptocurrency trading. This is just the latest of many crackdowns around the world on individuals and businesses who use coin exchanges or specialist crypto wallets.
Since the creation of Bitcoin in 2009, cryptocurrencies have had a rocky relationship with traditional banks and governments. In most countries around the world, trading in cryptocurrencies remains challenging, and many traditional banks either explicitly ban customers from engaging with this form of money, or make it hard to do so.
The good news is that there are a handful of crypto-friendly bank accounts that won’t sting you for purchasing digital currencies or receiving money from crypto exchanges like Coinbase, Kraken and Binance.
Why do most banks make crypto payments difficult?
There are several reasons that traditional banks (and in some cases, governments) make it difficult to trade with crypto:
Risk to inexperienced customers
The value of Bitcoin, Ethereum and other cryptocurrencies is notoriously volatile. For instance, in the 2018 Bitcoin crash, the value of Bitcoin fell by more than 60%. Many banks wish to prevent inexperienced customers from the risks involved in trading in these currencies (especially if they are buying crypto on a credit card).
Learn more: Read our blog on the history of Bitcoin
Costs of compliance checks
All banking institutions are required to conduct a variety of compliance checks such as KYC and AML on the source of customer funds – this is intended to help reduce the risk of money laundering and other illegal activities. These compliance checks can be more complicated in the cryptocurrency world, so banks without a specialism in this area prefer to avoid the responsibility of doing so.
Crypto is perceived as a threat
Governments and established banks perceive crypto trading as a potential threat to the established financial system. By allowing people to trade in a currency that circumvents central banks, there are concerns about how governments and banks would control everything from fiscal policy to mortgages. Until crypto, and decentralised finance, is better understood, many banks and governments are taking a conservative stance on the issue.
Because of these factors, most high street banks explicitly bar their customers from paying fiat currency into coin exchanges or receiving money from them. This means that it may be impossible to access funds that you hold in crypto, or you may see your personal/business bank account frozen for perfectly legitimate trading.
Fortunately, there is a growing number of crypto-friendly accounts which make it much easier for individuals and businesses to make and receive payments in crypto via trusted coin exchanges. What should you be looking for in these bank accounts?
bank account for crypto: features to look out for
There are now several crypto-friendly accounts available. What features will individual crypto traders or businesses need?
A bank that ‘knows’ crypto
Perhaps the most important thing to look out for when choosing a crypto friendly account is that the provider has a strong track record in the cryptocurrency world. This is important for several reasons, not least that they will be best placed to vet customers for compliance and security reasons.
Two major reasons that crypto is seen as risky are the perceived threat of criminal activities, or poorly informed speculators losing large sums of money. An experienced crypto bank account provider will conduct several due diligence checks with customers to ensure that their trading is legitimate and that they are well-placed to trade in crypto. This reduces the risk for everyone and means that crypto currencies can flourish.
Allows payments to and from established coin exchanges
Naturally, you would expect your crypto account to facilitate payments to and from your preferred coin exchanges, including Binance, BITFINEX, Kraken, Coinbase and so on.
Provide features of traditional bank accounts
One of the most common ways of trading with coin exchanges is to use a crypto wallet service where you can add fiat to purchase crypto. However, these wallet services offer very limited features; they’re fine for occasional hobbyists, but for serious traders and businesses a crypto bank account with traditional bank account features is very valuable.
For instance, if you wish to receive payments from customers, it is useful to have an account with an IBAN which allows you to receive payment from anywhere in the world. Similarly, a traditional style account lets you access networks like SWIFT, SEPA, CHAPS, BACS and UK Faster Payments. You can also make and receive direct debits, which is simply not possible with a basic crypto wallet.
Finally, a bank account will provide you with a debit card that allows you to make purchases in the ‘real world’. This will save you a lot of time as you avoid having to endlessly shift money from your crypto wallet to your regular bank account whenever you wish to buy something.
Supports multiple currencies
Crypto currency trading is, by its nature, an international activity. You will therefore want a bank account which allows you to make and receive payments in multiple fiat currencies and convert them at the best exchange rate.
Regulated and licensed
While your crypto currency may be stored digitally, you will want the confidence that any fiat currency you hold in your crypto bank account is well protected. Choose a bank account that is licensed with a reputable authority and which safeguards your funds.
Learn about Xace’s crypto-friendly bank account
Xace is one of a limited number of payment institutions offering crypto friendly bank accounts. As an FCA-licensed institution we are trusted by both businesses and individual crypto-traders to make and receive payments from crypto platforms.
By providing you with a comprehensive range of banking services, while also allowing you to interact with the crypto world, we aim to support your crypto activities.