Cryptocurrencies: More Bank Shots Ahead

Cryptocurrency companies are becoming banks.

Circle, the company behind the USD Coin (USDC) stablecoin, which is pegged 1:1 to the US dollar, is the latest US cryptocurrency firm to throw its hat in the ring to become a federally regulated bank.

In December 2020, crypto payments provider BitPay applied to the Office of the Comptroller of the Currency (OCC) to open a federally regulated bank. That same month, stablecoin issuer Paxos, which is behind the fiat-collateralized Paxos Standard stablecoin, filed to become Paxos National Trust and received the OCC’s conditional approval. 

Circle plans to become a “full-reserve national commercial bank,” operating under the supervision and risk-management requirements of the US Federal Reserve, Treasury Department, OCC and the Federal Deposit Insurance Corp., according to an August 9 blog post written by CEO Jeremy Allaire. Fully reserved banks are required to keep the full amount of each depositor’s funds in cash, ready for them to withdraw at any time. “We believe that full-reserve banking, built on digital-currency technology, can lead to not just a radically more efficient, but also a safer, more resilient financial system,” Allaire wrote.

Becoming a bank would make life simpler, as now Circle must adhere to a patchwork of money services regulations across different US states, says Mark Lurie, a board member of GMO Trust—which issues a yen-backed GYEN stablecoin and the dollar-backed ZUSD stablecoin. “If it is a bank at the federal level, it will only have to adhere to one set of regulations,” he says. “It also shows people that cryptocurrencies don’t have to be this scary bogeyman or Wild West, and that good actors can adhere to regulations.” As a national commercial bank, Circle also will be able to accept corporate deposits.

For countries like India that are hesitant to embrace cryptocurrencies, Darshan Bathija, co-founder and CEO of Vauld—which provides consumer crypto applications—says the developments at Circle shouldn’t be ignored. “This could be a huge signal across the crypto ecosystem that innovation can occur within existing regulatory frameworks,” he says. “Another cryptocurrency company becoming a federally chartered national commercial bank is certainly a step in the right direction.”