Metropolitan Commercial Bank is a well-known bank in the United States, providing services to both individual and corporate clients since 1999. However, in recent times, the bank has been forced to take a step back from its role in the cryptocurrency industry. Reports say that the bank will soon stop offering services to crypto firms in a bid to intensify the crisis surrounding the industry. This article aims to explore the reasons behind the bank’s decision and seek to provide insights into the cryptocurrency industry as a whole.
To understand why Metropolitan Commercial Bank has decided to exit the crypto industry, we must first look at the state of the industry. Cryptocurrencies have received a lot of attention from investors, with many seeing them as a viable investment option. In recent years, the value of cryptocurrencies has skyrocketed, with Bitcoin, the most popular cryptocurrency, reaching almost $20,000 in 2017. However, the market has also seen significant fluctuations in the value of cryptocurrencies, with Bitcoin dropping to around $3,000 in early 2019. These fluctuations in value have made investors wary of investing in cryptocurrencies.
The cryptocurrency industry has also faced several challenges, one of which is the issue of security. Cryptocurrencies can be lost or stolen, and there have been high-profile cases of companies and individuals losing large sums of money due to theft. In February 2019, for example, Canadian cryptocurrency exchange QuadrigaCX filed for bankruptcy, after its founder, Gerald Cotten, died with the password to $190m worth of bitcoins in his possession. This case highlights the security risks associated with cryptocurrencies.
Another challenge facing the cryptocurrency industry is regulation. Governments around the world have struggled to decide how to regulate cryptocurrencies, with some countries banning them altogether. The lack of clear regulations has made it difficult for companies to operate in the cryptocurrency industry, and this uncertainty has caused some banks, including Metropolitan Commercial Bank, to think twice about working with crypto firms.
Metropolitan Commercial Bank’s decision to exit the cryptocurrency industry comes after a series of high-profile scandals involving cryptocurrency companies. In January 2019, it emerged that the cryptocurrency exchange Bitfinex had lost access to $850m in customer funds. Later that year, the US Securities and Exchange Commission (SEC) sued two cryptocurrency startups, alleging that they had raised a total of $27m through fraudulent initial coin offerings (ICOs).
These scandals have highlighted the challenges facing the cryptocurrency industry and have made it difficult for banks to work with crypto firms. Many banks are reluctant to offer services to cryptocurrency companies, as they fear being associated with fraud and money laundering.
The decision by Metropolitan Commercial Bank to exit the cryptocurrency industry will have a significant impact on the industry as a whole. Cryptocurrency companies rely on banks to store and transfer funds, and without access to these services, many crypto firms will struggle to operate. The move by Metropolitan Commercial Bank is likely to intensify the crisis facing the cryptocurrency industry and may lead to more banks leaving the industry.
However, some analysts have argued that the move by Metropolitan Commercial Bank is a positive development for the cryptocurrency industry. They argue that the exit of traditional banks will force the industry to become more self-sufficient and innovative. Some crypto firms have already begun to develop their own payment systems, which could replace the need for traditional banking services.
In conclusion, the decision by Metropolitan Commercial Bank to exit the cryptocurrency industry is one of many challenges facing the industry. The cryptocurrency industry faces significant challenges, including issues of security, regulation, and the reluctance of traditional banks to work with crypto firms. However, despite these challenges, the industry continues to grow and develop, with new technologies and payment systems emerging. It remains to be seen how the industry will evolve in the coming years, but one thing is clear – the cryptocurrency industry is here to stay.
The crypto industry suffered a major blow with the consecutive closure of crypto-friendly banks in March 2023. Metropolitan Commercial Bank’s decision to exit crypto operations has further worsened the situation. According to the SEC filing on April 18, 2023, the bank’s crypto deposits were around $278.5 million, and its total deposits were around $4.9 billion. The decision comes after FTX’s former boss, Sam Bankman-Fried, was arrested, creating a black swan event in the crypto industry.
MCBank served four crypto clients, contributing to 1.5% of its total revenue, around $1 million. 6% of the bank’s total deposits came from them, around $342 million. This caused a contagion effect that affected almost everyone directly or indirectly with FTX.
The current scenario has made many crypto entities operating in America move offshore. This decision also concerns the ambiguous regulatory scenario in the country. Moreover, the continuous closure of these crypto-friendly banks created a banking crisis that many related to the Lehman Brothers Crisis of 2008. This was said to be a significant event that started the global recession.
The crypto industry can only function optimally with a good banking partner. This partnership helps the exchanges accept fiat deposits in return for their services or tokens. They would need banks to pay their employees and vendors, etc. The main concept behind crypto was building a parallel financial system free from intermediaries, but paradoxically they are dependent on Banks.
On April 18, 2023, co-CEO Joe Reilly and Carol Houle wrote a letter to the shareholders about the closure of crypto-friendly banks and how they shook the banking industry to its core. They argued that the situation was riding on the crypto downturn and affected multiple businesses, including those supported by Provident through their digital lending initiatives.
BYN Melon is still serving crypto clients, taking a slow approach. Provident Bancorp blamed the harsh crypto winter of 2022 as the root cause of the current banking crisis.
The sudden closure of crypto-friendly banks has created a crisis in the crypto industry. It has made it clear that the crypto industry needs a strong banking partner in the United States. The situation has raised concerns about the regulatory scenario in the country and the dependence on banks. The industry is in dire need of support to operate optimally and continue to prosper.