Crypto Firms Are Becoming Banks—Smart Strategy or Disaster Waiting?

I came to discover that crypto firms are now applying for banking licenses because they need to become more integrated in the legacy financial system.

Firms Coinbase, Circle, BitGo, and Paxos have started exploring or actively pursuing federal bank charters.

A banking license provides firms with three essential advantages: direct access to Federal Reserve payments, fewer banks on which to rely, and better regulatory and consumer acceptance.

The integration allows such firms to diversify their service offerings with deposit accounts and loans, which brings their activities closer to conventional banking institutions.

The conversion has several possible risks. The purchase of a banking license compels such firms to follow stringent regulatory requirements and comply with capital requirements and several compliance procedures.

The transformation to traditional banking institutions tends to pose difficulties in sustaining the revolutionary crypto philosophies within the customary banking institutions.

Crypto firms face regulatory issues as well as opportunities whenever they choose to become banks due to the transformation posing operational difficulties that may affect their core business principles.

The success of this transition in the short term relies on smooth integration between innovative practices and regulatory needs by these firms.