The digital asset industry is in the midst of a banking crisis, following the collapse of cryptocurrency-friendly bank, Silvergate Bank. Crypto.com is one of the cryptocurrency exchanges that have been affected by this development.
After Metropolitan Commercial Bank announced that it was leaving the cryptocurrency industry, the collapse of Silvergate Bank followed. Developments that resulted in Crypto.com preparing to lose its ability to accept deposits in US dollars (USD).
This is therefore a development that creates a problem for Crypto.com, which we explain below and is a challenge to try to resolve.
Banking services within the EEA
Crypto.com is – currently – able to provide banking services in Euros to users located within the European Economic Area (EEA), however it has had to put a lot of effort into finding a new banking partner as its previous provider saw its accounts frozen by the Central Bank of Lithuania.
Access to national currencies is important
For any cryptocurrency exchange, maintaining access to national currencies is “key” to ensuring liquidity. Moreover, access to national currencies always affects the ability to increase the prices of digital assets.
For example, cryptocurrency market analysts attributed the 10% correction in Bitcoin prices last January to the fact that Binance “froze” USD transfers.
An exchange that has the ability to serve users in only one part of the world and then only serve them in euros is bound to see its liquidity decline, and this – should it continue for some time – will inevitably raise questions about how healthy its liquidity levels are.
How it lost it’s previous partner
Crypto.com’s previous banking partner as far as customer service in Europe was concerned was Transactive Systems, which held licenses in the UK and Lithuania.
The Central Bank of Lithuania, which also has the role of market supervisor for the country, ordered the company last January to stop trading in digital currencies due to serious violations of anti-money laundering laws.
Bloomberg reported that Transactive is the… offspring of PacNet, a Vancouver-based payment processor accused by the US Department of Justice – which called it a “transnational criminal organization” – of processing payments for mail fraud schemes.
Four company executives have been charged in the US with mail fraud and money laundering. Provincial authorities in British Columbia, the company’s headquarters, are seeking to seize more than $17 million Canadian dollars ($12.31 million) in assets belonging to executives through a civil forfeiture action.
It is not known how much in national currencies, owned by Crypto.com, was “frozen” when authorities seized Transactive Systems’ accounts.
The problem in the US
Crypto.com will soon lose the ability to receive US dollar deposits from US-based users, as its US-based banking partner, Metropolitan Commercial Bank, exited the cryptocurrency industry last January. This is a wider problem facing the cryptocurrency industry in the United States of America, following the collapse of Silvergate.
The exchange still offers the ability for users to purchase cryptocurrencies via credit card and in September began waiving fees for new users for the first week.
However, an exchange that will soon rely for US dollar liquidity only through credit card deposits – a high-cost option – will be subject to wider questions about its liquidity.
In-chain data shows healthy deposits
Data from blockchain analytics platform, Nansen, shows that Crypto.com has a $3.6 billion transaction balance and a balance in stablecoins of $776 million. It also maintained a net flow of $248.8 million last week.
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