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Crypto Rises Again
Three years ago on March 8, Silvergate Bank announced its liquidation. The La Jolla, California-based institution had billed itself as “the leading provider of innovative financial infrastructure solutions and services for the growing digital asset industry.” Its clientele included the crypto exchange FTX, which collapsed in November 2022. FTX’s founder, Sam Bankman-Fried, is now sitting in a jail cell.
The current presidential administration is laying the groundwork for a resurgence of interest in crypto. Among measures, the Office of the Comptroller of the Currency has conditionally approved charters for a series of crypto and digital banks. Those include Crypto.com National Trust Bank and Erebor Bank — named after a fictional mountain in J.R.R. Tolkien’s “The Hobbit” that holds treasure for a group known as the Dwarves. Erebor’s techie founders raised capital last year that valued the bank at $2 billion, seven times its book value, according to The Wall Street Journal. Meanwhile this week, the Federal Reserve Bank of Kansas City approved the first master account for a crypto exchange, giving Kraken Financial access to the Fed’s payment rails, according to the newspaper. Cheyenne, Wyoming-based Payward has a special purpose depository charter from the state of Wyoming under the name Kraken Financial, evoking a tentacled beast of Scandinavian lore.
Mythological creatures and buried treasure aside, crypto is real. And this may be the year that crypto becomes more than a volatile asset class that the CEO of JPMorgan Chase & Co. once called a Ponzi scheme with no intrinsic value. After all, the OCC recently proposed rulemaking to implement the GENIUS Act, which will create a regulatory framework for payment stablecoins in the U.S. The stablecoins, backed by Treasuries and cash, could help speed up payments on cross-border transactions, for example. The OCC issued proposed guidelines recently to govern their use.
Still, even innovative banks will need to tread carefully and not repeat history’s mistakes. Mike Butler, the CEO and chairman of Grasshopper Bancorp and its $1.6 billion digital banking subsidiary Grasshopper Bank in New York, once told Bank Director’s sister publication FinXTech that when it comes to stablecoin, banks must understand the path to profitability and operate in a safe and sound way. “Just because the government says you can do it doesn’t mean it’s going to be profitable,” he said. “The reality is, the controls aren’t going away.”
• Naomi Snyder, editor-in-chief for Bank Director
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