Crypto Street, a startup thats building a platform for trading digital currencies like Bitcoin, is making a point of forging relationships with multiple banks after similar businesses suddenly lost their bank accounts and folded or scaled back.
You can never tell whats going to happen with any one bank, says Shamoon Siddiqui, one of Crypto Streets founders. The New York outfit, whose service is in beta testing, will be well hedged in this regard. He would not identify the banks the company is talking to but says they include large and small ones.
The strategy highlights a growing problem for young companies in the burgeoning Bitcoin economy. Last month, Bitfloor, a popular Bitcoin exchange, shut down and
Banks have long viewed money services businesses as risky customers. The
Jesse Powell, CEO of Payward Inc. which owns kraken.com, another Bitcoin exchange platform, says working with banks is risky for a business in this field, and having multiple relationships offers little comfort.
It's a temporary treatment for a symptom, he says.
Powell and others worry that if one bank closed a Bitcoin firms account, it would set off a chain reaction as other banks followed suit.
The question is whether the bank feels comfortable with your regulatory compliance, says Jeremy Liew, managing director at Lightspeed Venture Partners, a venture capital firm thats investing in Bitcoin startups. If one bank feels uncomfortable then its not hard to imagine the others will too.
Banks looking to start relationships with Bitcoin businesses want to see top tier venture capitalist backers and nationally recognized lawyers, Liew says. Everyone is looking for proxies of trust not only retrospectively but prospectively, he adds.
Crypto Street, which has about 1,000 users testing its exchange, is learning from others struggles, Siddiqui says.
We work with banks versus opening accounts left and right, Siddiqui says. His company, which is in the process of registering as a money services business with the Fincen, has been talking to compliance departments and bank executives to explain its business plan. Crypto Street would use banks to accept wire transfers and in-person cash deposits at branches.
Some worry that working with banks and other regulated entities could
Bitcoin firms working with banks is the inevitable future as the regulatory framework is built out, Powell says. Because of the risk involved with keeping large amounts of bitcoins on personal computers, for most people, [regulation] is probably a positive thing and if Bitcoin wants to get adopted worldwide that's how it's going to be.