Disclaimer: This page is not financial advice or an endorsement of digital assets, providers or services. Digital assets are volatile and risky, and past performance is no guarantee of future results. Potential regulations or policies can affect their availability and services provided. Talk with a financial professional before making a decision. Finder or the author may own cryptocurrency discussed on this page.
As cryptocurrency like Bitcoin, Ethereum and Litecoin gains mainstream acceptance, fintech companies are offering versatile ways for investors to manage, spend and earn on their cryptocurrencies. But while crypto banking products offer the potential for strong rewards — with potential returns as high as 14.5% or more, depending on the platform — they don’t often provide the key safety nets of traditional banking. The more you learn, the better equipped you’ll be to decide if the rewards of this new breed of banking outweigh the risks.
Crypto banking is a term used to describe digital exchanges or fintech companies that offer the ability for you to buy, sell, store and manage your cryptocurrency from a digital wallet. These services are designed to replicate the user experience of traditional or online banks, sometimes removing the need for you to ever personally interact with cryptocurrency.
What you can do with your cryptocurrencies beyond that depends on the platform. Many offer the ability to make payments through crypto debit cards and earn higher returns than you’ll find at your local bank. Some allow your crypto to be used as collateral for loans. And all-in-one crypto platforms like Blockfi allow you to buy, sell and earn crypto through products like crypto-backed loans, trading accounts, savings accounts and a credit card.
You can get involved in crypto banking through two common, beginner-friendly routes:
Carefully read the fine print of the crypto exchange you’re interested in to make sure it offers the services you’re looking for. You may be required to lock your cryptocurrency for a specified period of time before you can begin using it, for instance, or even wait a period of time before you can withdraw it.
Cryptocurrency — or “crypto” — is a type of digital money stored and traded on online platforms called exchanges. It’s recorded and tracked using a digital ledger called the blockchain, which is shared and accessible by all users across a network. Bitcoin (BTC) and Ethereum (ETH) are two popular cryptocurrencies that make up more than 7,000 digital coins.
Once you own cryptocurrency, compare products that allow you to manage, spend and earn rewards on it:
If you own enough cryptocurrency to park it in an account, you may be able to take advantage of high returns and rewards:
Cryptocurrency is a speculative investment, and today’s crypto banks lack protections and safeguards you may be used to:
You may come across the terms custodial and noncustodial when researching platforms, accounts or wallets.
Noncustodial wallets like Coinbase leave you in control of the private keys to your cryptocurrency. You’re the sole owner of your cryptocurrency across transactions on the platform.
Custodial accounts like Ledn require you to hand over your private keys, trusting the platform to act as the custodian for your crypto and manage it on your behalf.
One isn’t necessarily better than the other. It comes down to your preferred level of control and how you want to secure your assets. If you’re new to crypto, you might like the idea of a platform looking out for your cryptocurrency. If you’re a veteran, you may want to retain control of the assets you’ve built.
Crypto banks understand the risks associated with their services, and top companies have developed protections to mitigate those risks for consumers.
Crypto banks often allow you to choose between hot or cold storage of your assets. Hot storage means that your crypto is stored online, where it’s easy for you and the platform to access. Harder to access is cold storage, where your crypto is stored offline, offering deeper protection against hacking and breaches.
And while crypto isn’t protected by the FDIC or SIPC, some crypto banks provide safeguards through pooled insurance and partnerships with third parties.
Binance and other top platforms support “bug bounty” programs, which invite the help of ethical hackers and cybersecurity experts to intentionally breach security protections and expose vulnerabilities — helping to strengthen protocols and stay a step ahead of bad guys trying to gain access to your virtual assets.
Crypto banks that operate within the US must be licensed by the Financial Crimes Enforcement Network (FinCEN) and abide by anti-money laundering (AML) rules and regulations. It means that crypto exchanges are required to report suspicious activity and put in place a strong AML program that includes standard “know your customer” — or KYC — procedures when onboarding and verifying users.
Still, not all platforms have strong policies in place. A 2019 report by CipherTrace revealed that a third of the top 120 crypto exchanges have weak KYC policies.
Every time you sell, trade or use cryptocurrency for purchases, it’s considered a taxable event. Unlike fiat currency, which is considered an asset, cryptocurrency is considered to be property by the IRS, subjecting all virtual currency transactions to property taxation rules.
To stay compliant, you’re expected to keep track of every trade and transaction made with your cryptocurrencies.
Crypto tax software can make it easier for you to handle taxes associated with any profits gained from cryptocurrency markets by automating the process of learning tax codes and keeping track of trades and transactions you make. They also help you stay current with rapidly changing laws.
Use the tabs to sort and compare crypto account types to find the crypto banking products for your financial and investment goals.
Regulators in the US are calling for stronger control and oversight of cryptocurrency as it becomes more mainstream. The Federal Reserve is weighing the pros and cons of launching a digital currency that’s equivalent to the US dollar — like a stablecoin — in the future. And politicians are drawing up legislation to create a digital commodity exchange that would register, monitor and report cryptocurrency trades.
What’s clear is that cryptocurrency isn’t a fad. We’ll keep you updated on the regulatory landscape as it evolves to keep up with crypto’s meteoric progress.
Disclaimer: This page is not financial advice or an endorsement of digital assets, providers or services. Digital assets are volatile and risky, and past performance is no guarantee of future results. Potential regulations or policies can affect their availability and services provided. Talk with a financial professional before making a decision. Finder or the author may own cryptocurrency discussed on this page.
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