How recent bank account freezes impact UK cryptocurrency experts
Over the past few months, there has been an increase in the number of bank accounts belonging to cryptocurrency professionals being frozen or restricted across the UK, US and EU. It is said that many people do not care until something happens. Well, that was it this week. To my absolute surprise, it came from a place I least expected.
Revolut has long been considered the most cryptocurrency-friendly bank in the UK, offering in-app cryptocurrency purchases and finally adding the ability to send and receive cryptocurrencies in 2023, albeit with certain restrictions. However, recent events have called into question the bank’s commitment to providing a seamless experience for customers using cryptocurrencies.
Despite the UK no longer being part of the European Union, where the MiCA EU rules apply, the newly implemented travel rules require similar disclosures. This means that users will now have to disclose and identify the owner of the non-hosted wallet from which they receive withdrawals from Revolut.
However, UK cryptocurrency companies may apply a risk-based approach to determine when information about unhosted wallets should be collected. All you need is the ability to identify where your customers are transacting with non-hosted wallets and assess the risk of those transactions.
How the UK’s most cryptocurrency-friendly bank froze 0.23 ETH in my account
Two days ago I purchased 0.23 ETH (£550) through the Revolut app and attempted to transfer the funds to a personal Ethereum wallet linked to the well-known ENS domain. To my surprise, Revolut blocked the transaction and took the fee from my account. In addition, all bank accounts, including the joint account with his wife, were frozen.
After several hours of frustration and confusion, the account was eventually unfrozen and the fee refunded after further requests. However, certain wallet addresses remain blocked and funds cannot be sent to that account. This experience made me question the true nature of Revolut’s cryptocurrency friendliness. When considering alternatives in the UK, Revolut is still the best option for those dissatisfied with their traditional bank, but that’s a low bar. I believe incidents like this have less to do with Revolut being ‘anti-crypto’ and more to do with fears of regulatory retaliation.
Nonetheless, chat records between Revolut support and me reveal a lack of transparency about the reasons for freezing accounts and blocking wallet addresses. The support representative was unable to provide a clear explanation, citing internal policy against sharing specific reasons for these actions.
This incident raises concerns about the autonomy and control Revolut users have over their funds, especially when it comes to digital asset trading. Blocking private wallet addresses without a satisfactory explanation erodes confidence in a bank’s ability to facilitate smooth cryptocurrency transactions.
As the UK navigates the post-Brexit financial landscape, banks like Revolut must balance compliance with regulations and providing a user-friendly experience for their customers. Strict enforcement of laws and lack of transparency in resolving account and wallet issues risk alienating cryptocurrency users who rely on these services. This is especially true considering that the company is looking to offer a dedicated cryptocurrency exchange.
Debanking American cryptocurrency users
In the United States, even cryptocurrency users who have been long-time customers of traditional banks are facing account closure due to digital asset involvement. ETH Denver co-founder John Paller shared his recent experience on Twitter, revealing that Wells Fargo had written off his bank after 26 years of patronage and paying millions of dollars in fees. Paller’s checking, savings, credit cards, personal lines, non-profit, and business accounts were all closed without explanation, despite the fact that personal accounts were not used for recent cryptocurrency purchases.
Caitlin Long, founder and CEO of Custodia Bank, responded to Paller’s tweet, noting that there has been a significant increase in inquiries from cryptocurrency companies urgently looking to replace bank accounts that have been closed by banks. She called this trend another wave of ‘Operation Choke Point 2.0’ and suggested a full-scale witch hunt against cryptocurrency-related companies.
Bob Summerwill, Director of Ethereum Classic Cooperative, echoed this sentiment, emphasizing the need for banks like Custodia. He shared his experience with PayPal, which closed the Ethereum Classic cooperative’s account, without giving a specific reason, only saying that the decision was permanent and could not be reversed.
These incidents highlight growing concerns within the cryptocurrency community. Even people who have built a relationship with an existing bank and have a history of compliance risk losing access to banking services. The lack of transparency and sudden nature of these account closures raises questions about the underlying motivations for these actions and their potential impact on the growth and adoption of cryptocurrencies in the United States.
Positive friction actually means a terrible user experience.
Anecdotally, I have also heard from at least five other individuals who work in the cryptocurrency space and who regularly transfer significant sums of fiat through traditional banks that have their accounts frozen. I am not advocating the Wild West. Common sense regulation is all I ask for.
The UK’s approach to regulation also includes what is considered ‘positive friction’. This concept refers to a set of regulatory measures designed to introduce certain barriers or checks that delay the investment process for digital assets. These measures are intended to counter social and emotional pressures that may lead individuals to make hasty or ill-informed investment decisions. The Financial Conduct Authority (FCA) introduced this ‘positive friction’ as part of its Financial Promotions Bill to strengthen consumer protection in the cryptocurrency market.
Specific examples of “positive friction” include personalized risk alerts and a 24-hour cooling-off period for the company’s first-time investors. These measures are designed to ensure that individuals are adequately informed about the risks associated with cryptocurrency investments and have sufficient time to reconsider their investment decisions without being influenced by immediate emotional or social pressures.
The reality is a series of questions designed to scare new investors, followed by an ugly banner warning at the top of every cryptocurrency app that never seems to go away even after passing all the requirements.
I would like to know when the government will begin testing fractional reserve banking for all existing financial customers. You need to know the nuances of government regulation of cryptocurrencies, including who the FCA oversees and whether white papers are required. Let’s say you ask 10 people on the street what happens when they deposit funds into their checking account. I wonder how many people will pass the test.
How many people know that US and UK banks have a reserve requirement ratio of 0%? The previous 5-10% limit was reduced in 2020, and it is now up to the banks’ discretion how much of their customers’ funds are actually held in cash. So it is perfectly legal for a bank to take a deposit of £1,000 and loan the entire amount to someone else.
Of course, traditional finance is regulated and your money is ‘insured’ by government insurance, so you don’t have to worry. Let’s not look back to 2008 when we had to rely on those tools. By the time Northern Rock collapsed, less than 10% of its customers had withdrawn their funds.
Banks don’t keep all your money. Well-run cryptocurrency exchanges and self-custodial wallets do. But according to the regulations, should we be afraid of cryptocurrencies?
I think it’s the banks that are scared.
I asked Revolut’s support and
