Breaking Up With the Banks: Stories From Bitcoin’s Debanked Community
It’s been nine years since the first bitcoin exchange opened its domain to customers, but some of the world’s largest banks still have problems with their clients sending their money to these trading posts.
When bitcoin was in its infancy, exchanges created unexplored financial territory, and many banks were hesitant to approve wire transfers to them. They would often cite concerns about money laundering or other shady activity and either shutter or restrict the associated accounts. Exchanges themselves — along with other cryptocurrency companies — also have a rocky history with their banking providers. Sometimes untenable relations have led them to rely on the services of dubious payment processors. (As we’ve seen with Bitfinex losing $850 million to one of these middlemen, this can become a serious counterparty hazard.)
Further reading: Shadow Banking Explained: How Crypto Companies Play With Money in the Dark
While Bitcoin’s banking problem is nearly as old as its white paper, the situation isn’t improving. In fact, anecdotally at least, it seems to be getting worse.
Bitcoin Magazine has been in contact with dozens of community members whose banks have restricted or closed their accounts in response to cryptocurrency activity. Some, who turned to credit unions or payment processors as alternatives, continued to butt up against the same problem. Some are veterans of the struggle and have grievances dating back multiple years, while many others have had their run-ins in recent months.
Most of them come from the U.S. and the U.K., though we also spoke to a few from India and Canada. They’ve been barred from such banking monoliths as Wells Fargo, Citibank, Chase, HSBC, Santander and Barclays, among others; popular payment processors like PayPal, Venmo, Square, Virgin Money and others have also withheld their services from these cryptocurrency users.
Here are some of their stories.
“I was living in SF at the time. In 2016, I made a great return trading crypto personally with my own savings. In 2017, things got crazy,” one individual, whom we’ll refer to as “Alex Bigsby” out of respect for their anonymity, told Bitcoin Magazine.
Bigsby, who was based in the U.S. at the time, would compound their trading spoils by arbitraging on the Japan-based Bitflyer exchange. In 2017, there was a 1 to 2 percent spread for the bitcoin price on Bitflyer compared to U.S. exchanges, so Bigsby would send bitcoin to their friend who was a professional foreign exchange trader in Japan. The arbitrage quickly added up, and Bigsby found themselves with $20 million in profits. These jaw dropping returns caught the eye of Chase bank, which promptly closed the associated accounts.
“I was transparent with my bank about what we were doing and supplied them with a lot of paperwork to show source of funds,” Bigsby said. But no dice.
Following this snag, Bigsby set up their own trading firm “but within six months had to move to the U.K. to seek a more friendly regulatory and banking environment,” they told me. Before moving to the U.K., Bigsby cycled through nearly 20 banking partners and credit unions.
Other individuals dealing in high amounts, who otherwise went through all of the necessary disclosures, encountered the same problems. Ian Freeman, for example, operates what he calls bitcoin vending machines — the difference between these and bitcoin ATMs, he told me, is that ATMs facilitate trades using an exchange, while the bitcoin paid out on his vending machines come straight from his wallet.
The vending machines operate using accounts linked to the Shire Free Church, a Keene, New Hampshire-based, multi-religious body founded in 2010. Freeman, a founding member, described the church and its hometown as a “Crypto Mecca.” He told me that the church uses the funds from its bitcoin vendors to further its religious mission. On behalf of himself and the church, Freeman frequents LocalBitcoins as a liquidity source.
Because of this activity, Freeman and the Shire Free Church have juggled roughly two dozen bank accounts with Chase, Wells Fargo, Bank of America, Fidelity, TD Ameritrade and several credit unions “for cash deposits and for sending wire transfers to exchanges,” he explained. Freeman has used multiple credit unions, as well, one of which in New Hampshire told him that his account was being closed because it doesn’t want to take any chances with regulators.
Most of the time, though, when dealing with corporate banks, he described the account termination responses as “terse.”
“Usually the break-up letter cites that they have a contract that allows them to execute agreements at any time … if you try to call them and ask questions, they don’t answer you,” he said.
Instead, they routinely give him a deadline to close his account at a local branch. Failing this, they cut Freeman a cashier’s check and send him on his way to find a new place to park his money.
Like Bigsby, Freeman was dealing in large sums of capital ($100,000 at a time), which he admitted put him “on the radar” to be flagged for review. But plenty of smaller investors have been having problems as well.
Benjy Compson (also a pseudonym) had their student account shut down by Chase for selling small amounts of bitcoin at the beginning of 2019 “despite having proof that the sale was legitimate.”
Compson even had the buyer provide a picture ID and a note confirming that he wanted to buy the bitcoin. But it was all for naught, as Compson’s account was closed a week later. Compson, who is under 18, said that they have not been able to secure another bank account due to age restrictions and has been relying on gift cards and check-cashing services to get by since.
Compson used LocalBitcoins as their primary marketplace, an exchange that has led to banking problems for many of the community members I spoke to. One U.K.-based LocalBitcoins trader had his account at HSBC shuttered after making a few trades totaling 700 quid ($858). He provided them with the trading tickets, which the bank responded to with a notice of closure.
“As soon as they got wind I was doing bitcoin trades on LocalBitcoins they blocked the account and forcibly closed it,” he said.
Community members going through more institutionally-entrenched and regulated centralized exchanges aren’t free from scrutiny either. Take Baylor Landry, a U.S. citizen who had his Wells Fargo account restricted for purchasing bitcoin on Coinbase. He tried calling Wells Fargo to resolve the problem, but the representative “acted clueless and [was] unable to help.” The problem arose this August, around which time Landry came across Twitter users experiencing the same issue. He has since switched to Chase and has had no problems.
Last year, another man who was trying to purchase $250 worth of bitcoin on Coinbase had the transaction blocked by U.S. Bank. After going into a local branch, he managed to resolve the issue — until it happened again four days later. A U.K.-based cryptocurrency investor “had to open a new account at a different bank in order to purchase crypto from Coinbase” after Santander shut down his account. Other Santander customers also shared stories of their accounts being closed following cryptocurrency transactions.
Crypto Banking Alternatives?
One community member, who has been flagged over 15 times by his bank, told me that he must authorize each individual purchase. Despite his insistence that he will make repeated purchases, the fraud department of the bank “question[s] if [he is] being forced to make this purchase” each time he buys bitcoin.
He lamented that there are “not really any solid alternatives.” As I’ve seen in prior testimonies, he’s partly right — many of the users I spoke to encountered problems with PayPal, whose official policy, a representative told Bitcoin Magazine, is that “[b]uying and selling cryptocurrency using PayPal is a violation of our Acceptable Use Policy,” with the exception being investments made through Coinbase. Some have butted up against Venmo and Square, and one man in the U.K. told me that “Virgin Money blocks every single Coinbase transaction” he tries to make.
He’s not alone. Capital One and a credit union closed Aria DiMezzo’s accounts for selling bitcoin cash through Bitcoin.com. She turned to PayPal, Venmo and Cash App, all of which closed her accounts as well. Venmo even froze accounts she transacted with, and she claims that “Chase and J.P. Morgan won’t allow their customers to send me payments.”
Only PayPal has asked her for invoices on the money, which she supplied, but to no avail. Others haven’t asked for fund provenance, though she mentioned that if she said that they came from trading cryptocurrencies it would be “a death knell” to her accounts. Between her web of payment processor and banking accounts, she has $4,000 tied up.
With even payment processor alternatives shutting off liquidity pipelines, a new crop of crypto-friendly intermediaries has sprung up to service those cut off from the traditional banking system.
Options — But No Surefire Solutions
The most popular banking alternatives mentioned in my conversations for this article were Silvergate, Monzo and Revolut, but even these might not be surefire solutions. Bigsby, who uses Silvergate as their trading desk in the U.K., told me that Revolut “refused to open an account for me personally when I mentioned I work in crypto.”
One Revolut user in Europe was told that using the platform “for trading crypto from user’s [sic] on different platforms and making the payments through Revolut is strictly prohibited.” As for Monzo, one Reddit user had their account completely restricted from trading cryptocurrencies.
Many users, however, noted positive interactions with Silvergate, as well as the European-based Cashaa. Both advertise themselves as specializing in fiat-to-crypto banking, though Silvergate has the added experience of 25 years in the banking industry. This has netted it partnerships with some of the industry’s prime exchanges, like Bitstamp, Coinbase and “some OTC providers,” according to Bigsby. But this also means that it’s more interested in high-net-worth clients and business than individuals.
Cashaa, however, which was established in 2016, “is a good alternative for individuals,” Bigsby continued. “They have multi-currency accounts, and it’s quick and easy to open an account. Best service I’ve found for personal banking that is crypto friendly.”
The European company, which will be available soon in the U.S. thanks to a new partnership, began serving individuals in January 2019 through a referral program, though its founder admits that the bulk of its activity comes from businesses. Cashaa provides clients with U.K. bank accounts through Enumis, a British financial services company that operates as an electronic money institution (EMI) under the Financial Conduct Authority (FCA). As an EMI, Enumis can issue international bank accounts whose deposits are held at a handful of clearing banks in the U.K.
This roundabout system allows Cashaa to bank its niche crypto clientele. And demand for the service has been popular — Cashaa has received 600 applications this year.
This applicant pool, co-founder Janina Lowisz indicated, is the result of companies and individuals being flushed out of the system.
“I think the problem is, or how it has gotten more difficult is, because of increased awareness from a few years ago. [The banks] are on the lookout for this kind of activity,” she said, adding that many deplatformed clients had been using their accounts for cryptocurrency for some time.
Crypto Companies Get Weeded out
Now, though, in bank account applications, many banks will include questions about whether an account holder will deal with cryptocurrencies in an application, Lowisz said. Freeman corroborated this experience, adding that, whenever he mentioned bitcoin on an application, it was scrapped almost immediately.
The businesses Cashaa onboards, like Cashaa itself, tend to describe themselves as “a software platform” rather than a financial services company or, daringly, a crypto business. This semantic trick “worked for some time,” she said, but ultimately banks didn’t buy the distinction. Or, as Freeman explained, they’re not willing to take the risk with the regulators.
Speaking from the European perspective, Lowisz agrees.
“The reason why banks shut you down is because they are not allowed to deal with anything related to cryptocurrency,” she said. “It’s not that they’re anti-crypto themselves, but it’s because of European legislation.
“Sometimes you get lucky,” but not often, she added.
As businesses and individuals continue to lose already-established accounts, this luck is trending downwards.
A Failure to Communicate
Of course, it’s hard to tell whether or not this situation has gotten worse. The problem is as old as the first wave of awareness for Bitcoin, and back then, the consequences could be more drastic (I spoke to one individual who, following the closure of his Chase account, was arrested in 2013 by the federal government for arbitraging bitcoin on LocalBitcoins — something Freeman, DiMezzo and countless others do — because the government claimed they needed a money transfer license).
At the very least, the issue has not gone away, which is ironic considering many of the same banks that are closing accounts are inching their way into the industry, including TD Ameritrade, Fidelity, Santader, Chase and others.
Many banks still don’t have an official policy on the books. When you query searches to see if they have anything in writing, the best you’ll come up with is Chase’s “5 things you need to know about cryptocurrency,” but banks largely seem shy to advertise whether they permit cryptocurrency purchases or sales.
And they’re also not too willing to respond to inquiries regarding their customer accounts. Of the five institutions I contacted, only a Wells Fargo representative humored me, saying, “Wells Fargo will not recommend or facilitate any purchase or sale of virtual currencies,” nor, obviously, “accept any of virtual currencies as collateral… [or] in a deposit, custodial, or other type of account.”
Even this felt like a roundabout answer to a persistent problem. Perhaps the uncertainty is fitting, at least in the United States, for bitcoin’s and cryptocurrency’s footing among regulators and politicians. There’s no legislation on the books to define what bitcoin is, so regulators have evaluated it according to their specific jurisdictions (at the IRS as property, at the U.S. Commodity Futures Trading Commission as a commodity and at the U.S. Securities and Exchange Commission as a security).
Until Capitol Hill publishes an official stance on how to regulate cryptocurrency, U.S. banks will continue to play it cautious amid the confusion — as will banks in countries around the world that are working under similarly murky regulations. This probably means bitcoin users will continue to get the boot from big banks but it would also mean that, as these users search for new financial on-ramps, alternatives like Cashaa and Silvergate will continue to proliferate in parallel to the mainstream banking structure.