Cryptocurrencies: The New Money Maker for Small Banks

Cryptocurrencies can be a real annoyance for larger banks. But for smaller lenders, they’ve become a moneymaker. Silvergate Bank has been able to double its assets by working crypto companies.

According to the Wall Street Journal, smaller lenders are currently capitalizing on the opportunity to service cryptocurrency-related businesses as the big banks avoid the cryptocurrency sector.

A great example is Silvergate Bank, a small lender that only has three branches. Their initial focus was on small local businesses in San Diego. The bank’s assets have almost doubled from $978 million to $1.9 billion since the company began to work with cryptocurrency-related companies.

Other smaller banks like Metropolitan Bank Holding Corp. and Cross River Bank have also leveraged the opportunity to offer services to cryptocurrency-related companies. It allows small lenders to differentiate themselves from large banks.

“They’re taking on a risk and going against the inherent view (of crypto) that It’s all evil over there, don’t touch that stuff,” said Brian Stoeckert, a partner at Straits Advisory consulting firm that specializes in cryptocurrency businesses. “But then there’s also a view of OK, well they’ve got to get banked somewhere.”

Silvergate capitalizes on the opportunity by working with crypto-related businesses

Smaller banks offering services to cryptocurrency-related companies are taking on calculated risks. By embracing cryptocurrencies, they’re looking at an untested market filled with hazards and risks. Even today, digital currencies can be unpredictable with unclear regulations.

“Banking in this ecosystem is not for the faint of heart,” said Alan Lane, chief executive of Silvergate. Lane was interested in cryptocurrencies a few years ago after understanding how they could replace the existing banking system. He also learned that cryptocurrency exchanges and similar companies, while they’re against the traditional banking system, still require banks to continue functioning.

Exchanges need a venue to store customers’ money and convert cryptocurrencies to the dollar. Other cryptocurrency-related businesses also need to work with banks for everyday business activities. Silvergate, therefore, works with approximately 250 cryptocurrency companies and handles their banking services.

Working with big banks becomes a big risk for crypto-related businesses

Unfortunately, for many cryptocurrency-related businesses, working with big banks have significant risks and disadvantages. Cryptocurrency companies have even gone out of businesses after their banking provider decided to close their accounts. According to, Cryptopia, New Zealand’s cryptocurrency exchange in February 2018, had to quickly close businesses after the New Zealand banks had closed their accounts. Cryptopia said in an update:

“Due to the extremely short notice from the bank (and little opportunity to present our case and provide compliance documentation to demonstrate our commitment to the applicable regulations), we believe this is the best course of action to protect our users. While we are working hard to secure alternative banking services, we have to prepare for the possibility that there may be a period of time between this closure and being able to provide these services again in the future,”

Digital currency trading company, Genesis Global Trading has therefore banked with Silvergate for a few years and has appreciated the openness Lane has towards cryptocurrencies.  “I sat down with Alan early on, and he cared about Bitcoin,” said Michael Moro, CEO of Genesis Global. “He really believed in the potential of what this might become, and honestly it sort of was a refreshing take given the sentiments expressed by some of the other banks, especially the biggest ones.”

Unlike many other bankers, Lane doesn’t seem conflicted about aiding cryptocurrency businesses as their banker. “At what point as a banker do you pull your head out of the sand,” said Lane. “Every banker should be learning about the technology.”

Silvergate also works with family offices, institutional investors, and hedge funds that are looking to invest in cryptocurrencies and cannot work with their primary bank.

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