There has been an increase in cryptocurrency professionals' bank accounts being frozen or restricted across the UK, US and EU over the past few months. They say that you often don't care about something until it happens to you; Well, it happened this week. To my genuine surprise, it came from one place I least expected.
Revolut has long been seen as the most crypto-friendly bank in the UK, offering in-app cryptocurrency purchases and, in 2023, finally adding the ability to send and receive cryptocurrencies, albeit with certain restrictions. However, recent events have raised questions about the bank's commitment to providing a seamless experience for its customers using cryptocurrencies.
Although the UK is no longer part of the European Union, under which the EU MiCA regulations apply, the newly implemented travel rule requires similar disclosures. This means that users now have to disclose and identify the owners of any unhosted wallets that receive withdrawals from Revolut.
However, UK cryptocurrency companies are allowed to apply a risk-based approach to determining when they must collect information on unhosted wallets. They simply need to be able to identify where their customers are transacting with unhosted wallets and assess the risk of those transactions.
How the most crypto-friendly bank in the UK froze my 0.23ETH account
Two days ago, I purchased a modest sum of 0.23 ETH (£550) through the Revolut app and attempted to transfer the funds to my personal Ethereum wallet, linked to a well-known ENS domain. To my surprise, Revolut blocked the transaction and took the fee from the account. Furthermore, my entire bank account was frozen, including the joint account with my wife.
After several hours of frustration and confusion, the account was finally unfrozen, and the fees were refunded after another request. However, the specific wallet address remains blocked, preventing me from sending funds to that account. This experience left me questioning the true nature of Revolut's supposed cryptocurrency suitability. Looking at the alternatives in the UK, Revolut remains the best option for those unhappy with traditional banks, but it is a low target. I think incidents like this have less to do with Revolut being “anti-crypto” and more to do with fear of regulatory retaliation.
However, the transcript of the chat between myself and the Revolut support team reveals a lack of transparency regarding the reasons behind the account freeze and wallet address blocking. Support representatives were unable to provide a clear explanation, citing internal policies that prevent them from sharing the specific reasons for these actions.
This incident raises concerns about the independence and control Revolut users have over their own funds, especially when it comes to digital asset transactions. Blocking a personal wallet address without a satisfactory explanation undermines confidence in a bank's ability to seamlessly facilitate cryptocurrency transactions.
As the UK navigates the post-Brexit financial landscape, banks like Revolut must strike a balance between complying with regulations and providing a user-friendly experience for their customers. Strict enforcement of laws and lack of transparency in addressing account and wallet issues threaten to alienate cryptocurrency users who rely on these services. This is especially true considering that the company is looking to open a dedicated cryptocurrency exchange offering.
Cannibalization of cryptocurrency users in the United States
In the United States, even cryptocurrency users who have been long-time customers of traditional banks are facing having their accounts closed due to their involvement in digital assets. John Baller, co-founder of ETH Denver, recently shared his experience on Twitter, revealing that Wells Fargo cut him out of banking services after 26 years of sponsorship and paying millions in fees. Paller's checking, savings, credit cards, personal lines, nonprofit and business accounts were closed without explanation, though he has not used his personal accounts to purchase cryptocurrencies recently.
Caitlin Long, founder and CEO of Custodia Bank, responded to Paller's tweet, noting a significant increase in inquiries from cryptocurrency companies urgently seeking to replace bank accounts closed by their banks. She referred to this trend as another wave of “Operation Choke Point 2.0,” indicating a comprehensive witch-hunt against cryptocurrency-related companies.
Bob Summerwell, Director of Ethereum Classic Cooperative, echoed this sentiment, stressing the need for banks like Custodia. He shared his own experience with PayPal, which closed the Ethereum Classic Cooperative account without providing specific reasons, only stating that the decision was permanent and could not be reversed.
These incidents highlight a growing concern within the cryptocurrency community: even those who have established relationships with traditional banks and have a history of compliance are at risk of losing access to banking services. The lack of transparency and sudden nature of these account closures raises questions about the motivations behind these actions and the potential impact on the growth and adoption of cryptocurrencies in the United States.
Positive friction actually means bad user experience
Anecdotally, I have also heard from at least five other individuals working in the cryptocurrency space who regularly move large amounts of fiat currency through traditional banks whose accounts have been frozen. I'm not advocating the Wild West; Proper organization is all I ask for.
The UK's approach to regulation also includes what it considers “positive friction”. The concept refers to a set of regulatory measures designed to introduce certain barriers or controls that slow down the process of investing in digital assets. These measures aim to counter social and emotional pressures that may lead individuals to make hasty or uninformed investment decisions. The Financial Conduct Authority (FCA) introduced these “positive frictions” as part of its financial promotion legislation, which aims to strengthen consumer protection in the cryptocurrency market.
Specific examples of “positive friction” include personal risk warnings and a 24-hour cooling-off period for first-time investors with the company. These measures are designed to ensure that individuals are adequately aware of the risks associated with cryptocurrency investments and that they have sufficient time to reconsider their investment decisions without the influence of direct emotional or social pressures.
The truth is a series of questions designed to scare off new investors, followed by an ugly warning banner at the top of every cryptocurrency app that never seems to go away even after passing all the requirements.
I would like to know when the government will implement a test on fractional reserve banking for all traditional finance customers? We need to know the nuances of government regulation around cryptocurrencies, such as who oversees them from the Financial Conduct Authority (FCA) and whether a white paper is needed. Suppose we asked ten people on the street what happens when you deposit money into their checking accounts. I wonder how many will pass the test?
How many people know that US and UK banks' reserve requirements are 0%? The previous limits of 5 – 10% were dropped in 2020, and it is now up to the bank’s own discretion how much of its clients’ money is actually held in cash. Therefore, it is perfectly legal for a bank to take a deposit of £1,000 and lend the total amount to another party.
Of course, traditional finance is regulated, and the money is “guaranteed” by government insurance, so there is no need to worry. Let's not look back to 2008 when we had to rely on such tools, shall we? It took less than 10% of customers withdrawing money from Northern Rock for it to collapse.
Banks don't own all your money. Are well-managed cryptocurrency exchanges and self-custodial wallets doing this, but regulations suggest we should be afraid of cryptocurrencies?
I think it's the banks that are terrified.
I asked the Revolut support team and the X team if PR would like to comment on my situation before this editorial, but the question was repeatedly ignored.
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