San Francisco-based cryptocurrency exchange Kraken became the first cryptocurrency company to receive a letter serving as a bank in the United States. When viewed as part of a larger scale, change to regulatory attitudes that can help bring cryptocurrencies into the mainstream, The impact could be even more significant.
Kraken Financial, the company’s new bank, is based in Cheyenne and was given the green light in Wyoming on September 16 as a Special Purpose Depository Institution (SPDI), a bank that can receive deposits and assets.
“For Wyoming, this is an economic development initiative.” said the founder and CEO of Avanti, Caitlin Long, on Cointelegraph in a joint interview with David Kinitsky, Managing Director of Kraken Financial.
Avanti is another cryptocurrency company filing for approval to operate a bank. although it has not yet received legal approval. “Wyoming is trying to diversify its economy to generate jobs, capital and income from outside the state.” Long said. “Kraken’s letter is the first of Wyoming’s many hopes” pointed out and mentioned that More than 1,000 companies have turned to the state to benefit from its fintech-friendly legal framework.
“Wyoming has also done an excellent job building this public-private coalition to intelligently address industry problems.” Kinitsky added.
Two crypto companies that meet different requirements
Kraken did Publicity the approval of its statute on September 16. Although the company is the first to receive official approval, Avanti was released in February 2020 with a lot of fanfare within the industry, also looking for a statute, although a different role to play.
The two entities compete in some way, but not directly. “Everyone is competing, right? And we will certainly be competing at some level, no question about it, but I would suggest that our product sets and customer segments at this point are more different than similar.” Kinitsky explained.
“Kraken is primarily focused on the consumer, while Avanti is solely focused on institutions and wealthy investors, so our target customer base hardly overlaps.” Long said. “Avanti has no intention of becoming an exchange”, added. “There are certain things that we work on in conversations with Kraken that Kraken can help Avanti with and we can work together on some consumer aspects of the Avanti business, precisely because we are not serving consumers, we cannot.”
On the way to a common goal
Despite their differences The two companies have laid the foundation for the future of robust, non-suffocating regulation. You could describe the approach as “Competitive Competition”; Both companies cooperate and compete and pursue their unique endeavors towards a common regulatory goal.
“Granting a Wyoming SPDI marks a turning point for the US crypto industry precisely because local crypto companies did not have access to the Federal Reserve’s payment system until then.” Long said. “Only banks have access to the Federal Reserve’s payment system, and to date a domestic crypto company couldn’t be a bank.” Long explained. “Now a domestic crypto firm is a bank and kudos to Kraken.”
Kinitsky added that both Kraken and Avanti are making breakthroughs that will help the entire industry. “Only banks can interact with important parts of our national payments and other banking-related infrastructure.” explained. “If you want to be a large financial services company, you need to have direct access to this infrastructure.”
A changing financial landscape
Since its inception more than a decade ago, the cryptocurrency and blockchain movement has enabled a rapid change in technology and finance. Although slow to catch up, US regulators are finally setting parameters to encourage cautious growth. In July, for example, the Office of the Currency Auditor (OCC) approved the safekeeping of cryptocurrencies by banks approved by the federal government.
“We are at an interesting time in financial services in general as the digital asset industry merges with traditional fintech financial services.” Kinitsky postulated. “Banking is a kind of grandfather to everyone when it comes to regulated financial services. That is why the SPDI is so interesting.” added. “It enables us to come together and play in this landscape: digital assets, fintech and traditional financial services within a banking framework.”
Is banking the glue that holds the system together and makes most financial transactions easier? Kinitsky wondered, or is banking the base layer on which all financing is built? According to him, banking has not yet entered the cryptocurrency and fintech realm, as has the rest of finance. “You also see the crosswind between the authorities, both at federal and state level.” added, Refers to the OCC’s recent statement for clarity, not an amendment. “This is only a part”, he said, adding:
“There is no specific OCC or statewide framework for a bank or other institution focused on digital assets. There is no specific oversight program. Wyoming has invested a lot of time in these things and is one of the attractive features of SPDI, and so do I I am fairly certain that various states and national organizations will borrow generously from the Wyoming framework. “
Long, Kinitsky agreed, pointing out Wyoming’s 27-month trip to the first regulated domestic crypto bank. “This is not a short-term project,” he said. “It took a lot of work to get to this point.” As chair of the Wyoming Blockchain Task Force, Long himself played a key role in promoting Wyoming regulation.
After the frustrated expectations of 2017, when the first coin offering caught the attention of retail investors in the crypto industry, regulators stepped in and saw the need for tighter restrictions on the sector. Some regulations have hindered innovation, critics say, even though Wyoming has struggled to offer the best of both worlds: protection through regulation and the freedom for innovation to flourish.