Crypto Knocks on the Door of a Banking World That Shut It Out

By Gina Heeb and Vicky Ge HuangCrypto is pushing deeper into the banking system.A regulatory crackdown on crypto in the wake of the meltdown of FTX and two crypto-friendly banks prompted some in traditional finance to break up with the industry two years ago. Now President Trump's pledge to make America a "bitcoin superpower" has set the stage for crypto to become more intertwined with the banking system.A host of crypto firms including Circle and BitGo plan to apply for bank charters or licenses, according to people familiar with the matter. Crypto exchange Coinbase Global and stablecoin company Paxos are considering similar moves, other people said.That comes as the Trump administration moves to incorporate crypto into mainstream finance and Congress advances a pair of bills that would establish a regulatory framework for stablecoins, which let people easily trade in and out of more volatile cryptocurrencies. The legislation would require stablecoin issuers to have charters or licenses from regulators.Some crypto firms are interested in national trust or industrial bank charters that would enable them to operate more like traditional lenders, such as by taking deposits and making loans. Others are after relatively narrow licenses that would allow them to issue a stablecoin.World Liberty Financial, the Trump family's crypto project, unveiled plans to launch a stablecoin called USD1 last month. It said the stablecoin's reserves would be safeguarded by crypto custodian BitGo, which is getting close to submitting the bank charter application, people familiar with the matter said.Any crypto firm that obtains a bank charter would become subject to stricter regulatory oversight.Anchorage Digital, so far the only crypto firm in the country with a federal bank charter, said it spent tens of millions of dollars to comply with regulations.In 2022, a bank regulator issued a consent order against Anchorage, pointing to anti-money-laundering deficiencies."It has not been easy," said Nathan McCauley, chief executive officer of Anchorage, which obtained its charter in 2021. But he said the "whole gamut of regulatory and compliance obligations that banks have can be intertwined with the crypto industry."The San Francisco-based company this year became a custodian for BlackRock's iShares Bitcoin Trust alongside Coinbase. Anchorage also joined with Cantor Fitzgerald along with crypto custodian Copper for the firm's $2 billion bitcoin-backed lending program. Tether is a major client of Cantor, which was previously headed by Commerce Secretary Howard Lutnick.Stablecoins are pegged to the dollar or other government-issued currencies, and store reserves in cash or cash-like assets such as Treasurys to keep a one-to-one ratio in value in place. Tether is the largest stablecoin with a $145 billion market cap, and Circle's USD Coin is the second-largest with roughly $61 billion of tokens in circulation.Just a few years ago, major banks cut ties with the crypto firms after a regulatory crackdown on the industry following FTX's collapse. After the downfall of Silvergate Capital and Signature Bank, many founders in the industry struggled to find new banks that would take their deposits or lend to them.After Trump returned to the White House, regulators rolled back rules requiring banks to get approval to engage in crypto activities. Further guidance for how banks can engage with crypto is expected later this year, a person familiar with the matter said.Meanwhile, some banks are looking to play catch-up and forge ties with the industry.In February, Bank of America Chief Executive Brian Moynihan said his bank would issue its own stablecoin if a legal framework for doing so is established. U.S. Bancorp said this month it would relaunch its crypto custody service through a partnership with NYDIG, a bitcoin trading and banking firm.Separately, a consortium of banks, which includes Deutsche Bank and Standard Chartered, has started to examine how to expand crypto operations to the U.S., according to a person familiar with the matter. A spokesman for Deutsche Bank declined to comment. Standard Chartered didn't respond to a request for comment.Some banks remain cautious. KeyCorp Chief Executive Chris Gorman said crypto could increasingly become competition for the industry and that his bank sees potential opportunity in the space but wants to first see how it develops.He pointed to regulatory challenges such as anti-money-laundering safeguards with crypto. Banks can see where it goes at first, he said, "but beyond that it's hard to trace."Write to Gina Heeb at [email protected] and Vicky Ge Huang at [email protected]