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TradFi vs. DeFi: U.S. & UK Banks Keeping Them Separate While Others Blur the Lines 

Last Updated October 30, 2023 5:29 PM
James Morales
Last Updated October 30, 2023 5:29 PM

Key Takeaways

  • Discouraged by regulators, some US and UK banks have fully embraced the crypto sector.
  • Elsewhere, TradFi lenders are increasingly willing to engage with crypto asset businesses.
  • Some of Thailand’s largest banks have invested hundreds of millions of dollars into crypto firms.

As institutional gatekeepers to the bulk of the world’s wealth, banks hold the key to unlocking huge capital flows into decentralized finance (DeFi). But, to date, the DeFi sector’s treatment by some of the biggest banks in the US and UK has ranged from lukewarm to frosty.

The same isn’t true in other parts of the world, however. While Western giants of traditional finance (TradFi) have mostly opted to keep their distance, in emerging markets like Thailand, banks have demonstrated a much greater appetite for crypto.

Dissolving The TradFi/DeFi Barrier

While Thailand may not be known for its crypto businesses, the country’s financial institutions are increasingly invested in its DeFi space.

In the latest development, on Monday, October 30, K-Bank announced  its acquisition of a 97% stake in the local crypto exchange Satang. The 3.7B baht ($102.8M) deal was made via Unita Capital, a wholly-owned subsidiary of the bank that focuses on digital assets. 

K-Bank’s latest acquisition builds on a strong tradition of crypto investments. The Thai lender has previously backed a number of blockchain and Web3 venture capital (VC) funds including Hashkey and Symbolic Capital.

After collaborating with several crypto-focused VC firms, in September, K-Bank launched  its own $100M DeFi fund: KXVC.

SCBX, which owns the 120-year-old Siam Commercial Bank, is also looking to get in on the DeFi investment trend. Through a partnership  with the South Korean VC fund Hashed, SCBX intends to “spearhead research and development efforts in Web3 technology trends” the two companies said in a press release.  

Significantly, Thailand’s largest banks haven’t limited their interest in blockchain to behind-the-scenes technologies. 

In fact, K-Banks’s latest acquisition points to a full-throated endorsement of retail crypto trading, a move that many Western banks have refused to consider. And despite being home to some of the world’s major crypto hubs in London, New York and Silicon Valley, banks in the US and the UK have typically been hesitant to embrace the sector.

British Banks Give Crypto The Cold Shoulder

In the UK, the Financial Conduct Authority (FCA) frequently issues consumer warnings on the dangers of cryptocurrency investment. As a consequence, banks that encourage the practice risk both the scorn of regulators and serious reputational damage if their customers end up losing money.

Facing such a prospect, the retail crypto trade has become something of a taboo for many of the UK’s largest banks. Instead of exposing themselves to potential blame for their customers’ losses, some have opted to restrict their ability to buy cryptocurrencies in the first place.

In the most extreme instance, Chase, a UK-based digital bank operated by JPMorgan, recently moved to ban people from using their accounts to purchase cryptocurrency.

“If you’d still like to invest in crypto assets, you can try using a different bank or provider instead – but please be cautious, as you may not be able to get the money back if the payment ends up being related to fraud or a scam,” the bank told customers in an email.

Other restrictions faced by UK crypto investors include caps on how much money they can send to exchanges imposed by Natwest and Santander. Meanwhile, HSBC and Nationwide have banned customers from purchasing crypto with their credit cards.

Banking Services Dry Up For US Crypto Firms

While British banks are reluctant to facilitate the retail crypto trade because of its reputation for fraud, their American counterparts are equally weary of the risks that working with digital asset businesses may create. 

Just like the FCA has set the tone for UK banks’ treatment of consumer cryptocurrency investing, US regulators have made it clear that banks should approach crypto businesses with the utmost caution.

For example, in January, the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency issued a joint statement  expressing serious concerns about the financial risks posed by the crypto sector.

“The agencies have significant safety and soundness concerns with business models that are concentrated in crypto-asset-related activities or have concentrated exposures to the crypto-asset sector,” the statement read.

With regulators already advising US banks to stay away from crypto firms, things got even worse for the American crypto sector in March this year, when three of its most active financiers collapsed in quick succession. 

After a triple whammy of failures saw Silvergate Capital, Silicon Valley Bank and Signature Bank, many US crypto firms found themselves without a banking partner.  What’s more, with other American banks understandably cautious of taking on potentially risky customers, some US firms have been forced to look overseas 

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