Cryptocurrency exchange Circle is seeking a banking license from the federal government of the United States. If successful, this would be the first cryptocurrency exchange that becomes an official bank in the United States, which would be a major milestone for the cryptocurrency world.
Becoming a bank would give Circle some important benefits, such as being able to access the central banking system without intermediaries which would allow Circle to settle with other banks in different markets around the world. Also, Circle would be able to store money in the Federal Reserve, as well as take loans at the extremely low inter-bank federal funds rate of 1.75%, freeing Circle from dealing with higher-cost lenders. These benefits would improve the efficiency and reduce the cost of Circle’s services.
Becoming an official bank would also simplify Circle’s regulation process. Cryptocurrency exchanges are regulated differently in each state, but if Circle would become an official federally-recognized bank, it would only have to answer to the federal government. As Circle’s chief compliance officer Robert Bench says, instead of “50 conversations”, Circle would only have to be involved in one conversation.
Additionally, Circle is trying to register itself as a brokerage and trading venue with the Securities and Exchange Commission (SEC). This would give Circle the proper licensing to facilitate trading of digital assets considered to be securities. This is crucial since Circle acquired Poloniex for USD 400 million in February 2018, where there are dozens of cryptocurrencies being traded, some of which could be considered securities. Already, many cryptocurrencies have been delisted from Poloniex following Circle’s acquisition to avoid SEC backlash.
Circle has an OTC trading service that transacts USD 2 billion of cryptocurrency every month, as well as an investing platform where users can put money into various cryptocurrencies but not withdraw the cryptocurrency. Circle also has a pay service where users can send money instantly to people in 29 countries with USD, GBP, and EUR. Deposits held with this service are FDIC ensured up to USD 250,000, like all banks in the United States.
It is only natural that a service like Circle which deals with so many financial transactions and deposits would consider becoming a bank. Only time will tell if the US government will let a firm so heavily involved with cryptocurrency to achieve this.
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