There seems to be a growing trend for banks to treat crypto exchanges with hostility. Over the years we’ve seen a trend of banks deciding to stonewall exchanges by freezing accounts, or by blocking the movement of funds worldwide, or they ban purchases of cryptocurrencies with bank cards.
This article will briefly look at multiple cases of hostility from several banks towards cryptocurrency exchanges.
The Struggle of Cryptocurrency Exchanges
On January 8, 2018, Canadian exchange Quadrigacx had 21.6 million US dollars frozen by CIBC, and to date those funds have yet to be unfrozen. CIBC wanted those accounts held on ice until they would be able to determine who the rightful owner of the funds are. However, Quadrigacx says that they are the undisputed owner of the majority of the funds.
Quadriga further goes on to accuse CIBC “of seeking ways to further prolong the holding of these funds while trying to rationalize an act which should not have happened in the first place.”
In other words, the platform feels that the bank is conspiring to make their operations harder by placing deterrents on their access to funds. They’ve also claimed that the big six banks in Canada have been stonewalling crypto exchanges, making it increasingly difficult to find banking partners.
Quadriga is not the only one who has been experiencing this type of treatment. In Brazil, a probe was launched into six major national banks for “alleged monopolistic practices.” This investigation is being conducted by the Administrative Council for Economic Defence (CADE), which is a branch of the Ministry of Justice in Brazil.
In a report written by Reuters, the CADE is quoted “…banks are imposing restrictions or even prohibiting … access to the financial system to cryptocurrency brokerages.”
In other words, it is not only the exchanges that are saying that banks might be operating in a malicious way. Even the branch of the Brazilian Ministry of Justice is looking at banks’ behaviour with suspicion.
One Brazilian cryptocurency exchange Walltime took a bank to court and won, requiring the bank to unfreeze an account with over $200,000 USD. The article goes on to say that the “bank account was blocked without any notice or justification.”
And it does not end there. There are many cases of a country’s banks unfounded policy causing damages to a cryptocurrency exchange.
In Bulgaria, a blanket-sweep from their top banks “terminated accounts held by the country’s cryptocurrency exchanges.” Supposedly, the risk of dealing with fiat-bitcoin transactions was just too great, so the banks coordinated efforts “to block accounts held by Bulgarian crypto exchanges…” And the banks did this without government decision on appropriate measures for regulation.
In December 2017, Australian crypto exchange Coinspot had to temporarily suspend AUD deposits due to ongoing friction with local banks. The exchange went on Facebook and posted,
“We assure you we are just as unhappy with the situation as you but unfortunately Australian banks have been so far unwilling to work with the digital currency industry which leads to frequent account closures and strict limits on accounts whilst they remain operational, in effect debanking our industry.”
In another case reported by ccn, OrionX, a Chilean-based exchange, took one of their country’s biggest banks, Banco Estado, to court and won their case. The Court ruled that the state-owned bank illegally froze accounts and ordered them to free the funds. This came after what seemed like a country-wide blanket ban on the cryptocurrency industry.
According to Bloomberg, the government of India supported its central bank – the Reserve Bank of India (RBI) – in their decision to prohibit financial institutions from providing any services dealing with cryptocurrency. The supreme court of India went on to bar all other courts from accepting petitions, after 5 had been filed against RBI. In other words, the supreme court of India is saying, “this is our decision, and we’re not open to discussing the matter any further.”
As ccn reports, India’s crypto exchange operators unanimously have voiced that the RBI’s decision was “arbitrary, unfair, and unconstitutional,” especially after a policy of the Right to Information request went through, “forcing the central bank to admit that it had conducted no research or consultation before introducing its crippling policy.”
In early April of 2017, Wells Fargo put in restrictions on Bitfinex’s ability to send money worldwide. Specifically, they prohibited the completion of all outbound wire transfers. In response to this, the crypto exchange filed a lawsuit against the bank.
The trading platform wanted an injunction against the bank in order to prevent the blocks for the wire transfers. They also wanted $75,000 to cover damages against them.
Coindesk reports that a “representative for Bitfinex took to social media soon after word of the suit emerged, declaring that “to be clear, this isn’t a regulatory action” and that no funds had been frozen
“The decision to initiate legal action is because we cannot allow precedents in this industry where clearing houses can disrupt businesses that are by all metrics complying with the rules in place. If we allow them to simply flip a switch and disrupt business, then there becomes a precedent in the bitcoin industry beyond just Bitfinex, so we believe it is the appropriate time to take action.”
However, that lawsuit was dropped a week after it was filed. Bitfinex stated, “We voluntarily dismissed our case, accepting the court’s decision, and find that we’re best served focusing our efforts on existing and developing relationships.”
Innovation Threatens Old Business Models
Over the past decade we’ve seen a trend of technological innovations eating into the profit margins of older business models. The internet allows individuals to bypass traditional business structures by levelling the playing field. Cable TV is becoming a thing of the past as sites like Netflix and YouTube allow users more control over their content consumption. Large media conglomerates now have to compete directly against alternative news sites and information on social media. Applications like Uber challenges the old monopoly around taxi medallions. Amazon has been taking away profit from well established retail stores and putting many of them out of business.
Bitcoin has been following suit with this tech trend by giving individuals alternative methods of storing and transferring wealth without needing a bank. The hostility of some banks towards crypto exchanges shows that they may be threatened by the technology. That said, not all banks have been hostile towards crypto, the smart ones have been hedging their bets by investing directly into building crypto infrastructure. Financial institutions that embrace the change and pivot into the industry will likely do better than the ones fighting against it. History teaches us that fighting innovation is often futile. Adapting to change is the key to survival.
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