Should Banks Be Scared of Crypto Deposits?

Banks have long hesitated to accept cryptocurrency deposits, citing regulatory uncertainty, compliance risks, and reputational concerns. But that caution is increasingly outdated. Advancements in compliance technology and maturing regulatory frameworks have created a more favorable environment for banks to engage with virtual asset service providers (VASPs) including exchanges, stablecoin issuers, and peer-to-peer platforms. As the digital asset industry stabilizes, traditional financial institutions are finding new opportunities to serve VASPs safely and profitably while maintaining robust risk management standards.  

The potential for mutually beneficial relationships between banks and VASPs is evident amid rising costs of funds and lack of cryptocurrency service offerings.[1] Banks could lower their funding costs by accepting crypto deposits, increasing net interest income. Simultaneously, as more banks enter the market, VASPs gain stability by reducing their concentration risk, and regulators gain comfort through reduced risk of de-banking. This symbiotic relationship can strengthen both sectors while promoting innovation. 

Regulatory Resistance  

Historical resistance to crypto-banking relationships was well founded. The proliferation of illicit activity, combined with the crypto industry’s initial resistance to traditional compliance frameworks, created legitimate concerns for banks and regulators. Regulators have fined VASPs billions of dollars for facilitating illicit activity. The continuous technical nature of blockchain creates unique operational and risk management challenges for traditional banks. For example, the collapse of crypto-friendly banks Signature and Silvergate, which operated continuous 24/7 fiat transfer networks between VASPs, demonstrated the threat posed to financial stability by blockchain. 

Concurrent with these developments, Operation Chokepoint 2.0—an initiative by US regulatory agencies to restrict the cryptocurrency industry’s access to traditional banking services—revealed how far agencies were willing to go. For instance, the Federal Deposit Insurance Corporation’s (FDIC) Division of Risk Management Supervision sent letters to twenty-three banks requesting they pause cryptocurrency activity.[2] As compliance technologies evolve and both banks and regulators deepen their understanding, risk-based adoption of blockchain technology by banks appears inevitable. 

Blockchain Analytics and Opportunities for Sound Risk Management 

Compliance professionals have struggled to use risk management controls designed for traditional fiat currencies to address risks posed by cryptocurrencies. While the pseudonymous nature of cryptocurrency transactions initially posed challenges, it also created opportunities for transparency through blockchain analytics attribution. These intelligence tools provide compliance capabilities for transaction monitoring and market surveillance. Bitcoin wallet addresses associated with nefarious actors can be flagged and reported. In April 2023, the Al-Qassam Brigades—the military wing of Hamas—announced that it would end its bitcoin fundraising program, citing enhanced abilities in detecting, reporting, and blocking illicit transactions through blockchain tracing tools.[3] Score one for effective illicit finance controls!  

Despite progress in compliance tools and regulatory clarity, banks must remain vigilant. Cryptocurrency markets remain volatile, regulatory frameworks continue to evolve across jurisdictions, and decentralized platforms often operate without clear lines of accountability. Issues like smart contract vulnerabilities, fraud in token listings, and cross-border enforcement limitations still pose real risks. However, these challenges are not insurmountable—and many can be mitigated through rigorous due diligence, effective governance, and continuous monitoring tailored to the unique characteristics of digital assets. 

Banks can look to Europe’s Markets in Crypto-Assets (MiCA) regulation and state banking regulators for risk frameworks. MiCA has established clear standards for “e-money tokens” (aka stablecoins), including detailed requirements for reserve management and transaction reporting throughout the European Union. Domestically, state banking regulators can offer a preview of federal regulations. For example, the GENIUS Act’s stablecoin backing provision overlaps with New York Department of Financial Services’ June 2022 guidance on the issuance of US-dollar-backed stablecoins. 

Changes in executive leadership have brought a more collaborative approach to VASP supervision. On March 7, 2025, the Office of the Comptroller of the Currency (OCC) issued an interpretive letter rescinding interpretive letter 1179 requiring notification and nonobjection for crypto-asset activities. On March 28, the FDIC rescinded a similar letter allowing institutional customers to engage in “permissible crypto-related activities without receiving prior approval.” Most recently on April 24, the Federal Reserve Board rescinded guidance requiring state member banks to provide advance notice of planned or current crypto-asset activities; and waived the supervisory nonobjection process for state member bank engagement in dollar-backed token activities.  

Turning Risk into Opportunity 

The current technological and regulatory environment is increasingly conducive to relationships between banks and VASPs. Blockchain technology is widely recognized as a transformative innovation. Robust compliance programs are standard practice, reflecting a more mature and responsible market.  

For banks considering VASP relationships, the path forward lies in adapting proven best practices from Banking-as-a-Service (BaaS) and fintech partnerships. Success depends on strong risk governance and practical controls tailored to the crypto ecosystem. Core elements of a sound VASP banking program include: 

• Comprehensive onboarding and due diligence, including assessments of licensing status, ownership structures, and historical compliance performance. 

• Real-time transaction monitoring that leverages blockchain analytics tools to flag high-risk wallet activity and unusual transaction patterns. 

• Ongoing risk assessments based on transactional behavior, counterparty exposure, and regulatory developments. 

• Clear escalation and reporting protocols for suspicious activity, tailored to the crypto environment’s 24/7 nature. 

• Robust contractual safeguards and service-level agreements that define data-sharing expectations, compliance obligations, and termination rights. 

These tools provide the foundation for safe, scalable relationships with VASPs—allowing banks to manage evolving risks while expanding into a dynamic and high-growth sector. 

Conclusion 

Institutions that successfully navigate this transition will be well positioned to capture significant opportunities in the evolving cryptocurrency landscape while maintaining the safety and soundness expected of traditional banking relationships. With tailored due diligence frameworks, enhanced blockchain analytics, and risk-based controls adapted from BaaS partnerships, banks can confidently serve VASPs while meeting regulatory expectations. 

BRG can help. We work with financial institutions to design and implement comprehensive VASP compliance programs—integrating transaction monitoring, governance structures, and third-party oversight protocols that satisfy federal and state regulators. Our team brings deep expertise in crypto risk management, helping banks transform perceived risks into scalable, compliant growth strategies. 

[1] Conference of State Bank Supervisors, 2024 CSBS Annual Survey of Community Banks (October 2024). https://www.csbs.org/sites/default/files/other-files/
FINAL2024CSBSSurvey.pdf

[2] History Associates Inc. v. FDIC, No. 1:24-cv-1857-ACR (D.D.C.) FDIC’s Redacted Pause Letters (November 22, 2024). https://storage.courtlistener.com/recap/gov.
uscourts.dcd.270028/gov.uscourts.dcd.270028.26.1.pdf

[3] Nidal Al-Mughrabi, “Hamas armed wing announces suspension of bitcoin fundraising,” Reuters (April 28, 2023). https://www.reuters.com/world/middle-east/hamasarmed-
wing-announces-suspension-bitcoin-fundraising-2023-04-28/