Coinbase CEO Brian Armstrong says the exchange has previously considered adding features to become a neo-bank of sorts.
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The wider cryptocurrency community continues to debate the ongoing fallout following the closure of three major American banks, with calls for neobank services for the industry on the cards.
Silicon Valley Bank (SVB), which has traditionally served startups across a number of innovation sector industries, was shuttered by California’s Department of Financial Protection and Innovation on March 10.
The reasons surrounding the closure are still coming to light but the news caused shockwaves through the industry, primarily driven by USD Coin (USDC) issuer Circle having over $3.3 billion of its $40 billion reserves locked up in the bank.
Signature Bank, which also serves some cryptocurrency firms, followed a similar fate on March 12. The New York Department of Financial Services (NYDFS) took possession of the bank to prevent further bank runs as customers looked to pull out funds from SVB and Signature.
The closure of SVB was particularly hard-hitting, as the USDC stablecoin briefly lost its $1 peg driven by major uncertainty around the effect Circle’s exposure would have on the ability to manage redemptions.
Related: Silicon Valley Bank collapse: Everything that’s happened until now
USDC has seen its peg creep back up to the $1 mark after Circle CEO Jeremy Allaire announced that the stablecoin issuer has lined up new banking partners as of March 13 in the United States.
Given the tumult of the past few days, the cryptocurrency ecosystem is now taking a closer look at ties to traditional finance institutions that serve fiat currency deposits, withdrawals and monetary flows.
Coinbase CEO Brian Armstrong took to Twitter on March 13, saying that the American cryptocurrency exchange has previously considered features that could potentially bypass or serve to bridge gaps experienced in the latest mainstream banking failure.
Ryan Lackey, CSO of cryptocurrency insurance firm Evertas, questioned whether the exchange had considered offering neobanking services to high-net-worth individuals and businesses:
Hey @brian_armstrong and @coinbase — after the SVB hell over the weekend, why don’t you set up Coinbase as some kind of HNW + business neobank, with the “pass through assets to community banks and treasuries” as a first-class option in parallel with crypto.
— Ryan Lackey (@octal) March 13, 2023
Armstrong replied saying that Coinbase would need to add a number of features and opened the door for comments in the thread:
“Definitely something we’ve thought about. Need a few more features like outbound wires, multi-user support etc. Non-fractional reserve “banking” is definitely looking more attractive right now.”
Coinbase confirmed that it had around $240 million held at Signature Bank on March 10, but expects to recover all of its corporate cash holdings.
The closure of SVB and Signature Bank caused fears of widespread runs on regional banks across the United States over the weekend. A Bloomberg report also suggests that the United States Federal Reserve and Federal Deposit Insurance Corporation (FDIC) are weighing up the creation of a fund to cover deposits at ailing banks.
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Recently, Coinbase CEO Brian Armstrong has speculated about the potential of Coinbase offering banking features instead of relying on Silicon Valley Bank (SVB). In the wake of a recent SVB crisis and the inability of some cryptocurrency companies to access their funds, Armstrong broached the idea during a recent interview with Fortune.
This comes in direct response to the recent SVB crisis, where companies such as MakerDAO, a blockchain-based loan provider, wasn’t able to access millions in customer funds due to SVB’s changing attitude towards cryptocurrency and blockchain companies.
According to a Bloomberg source familiar with the matter, SVB has re-evaluated its position on cryptocurrencies, including placing specific limits on services for crypto-related firms. This caused a vacuum for crypto-based companies and their banking needs, which could potentially be filled by Coinbase.
In the interview, Armstrong noted that Coinbase’s team has discussed the idea of providing banking features, such as hosting deposits and offering loans, to “crypto-native” companies. He also noted that the company’s interest in supporting the cryptocurrency community was part of its growth strategy.
As the largest cryptocurrency exchange and the world’s most funded Bitcoin unicorn, Coinbase provides a unique position to become a leading cryptocurrency bank. However, there are countless regulatory and technological problems that Armstrong and Coinbase would need to address, including money laundering laws and providing liquidity in order to fund the loans.
Expect to see more news on Coinbase’s potential foray into banking this 2020.
