Banking, Bitfinex and the Hidden Irony of Crypto's Newest Controversy

There's a case to be made that new crypto technologies and business models will foster a sufficient mix of greed and fear to drive banks into a more accommodating stance with crypto entities.

For now banking challenges remain rife for crypto firms.

If exchanges like Bitfinex had access to bank accounts for liquidity, Tether would never have become as integral to a large part of the bitcoin market's clearing system as it did.

The exchange opened trading in Tether's USDT tokens, which the stablecoin provider promised could be redeemed one-for-one for dollars, and ultimately began using them to solve for liquidity needs that banks were not providing.

Rather than clearing customers trades' through cumbersome banking system transactions that require deep institutional support, exchanges could freely manage their fiat-to-crypto float by moving in and out of a de facto crypto dollar.

For Tether to consistently stand up the claim that one USDT token equaled one dollar, it had to convince investors that it held the equivalent in actual dollars in reserve at one or more banks.

When doubts about Tether's audits bled into concerns about its banking relationships, confidence dropped and the token lost its peg in the market.

In summation, it's fair to say that the bitcoin market's persistent concern about a Bitfinex-Tether house of cards wouldn't exist if banks had more readily serviced bitcoin exchanges.

As a more deeply banked stablecoin ecosystem emerges it will also provide stability to the market for blockchain-native cryptocurrencies such as bitcoin.

This brings us to a somewhat ironic conclusion for crypto true believers who pine for an end to the centralized banking system and a digital store of non-fiat value: the road to utopia may be paved in deals with bankers and government regulators.