Crypto-friendly banking: What should you know?

The idea of a crypto bank may be puzzling for some of the founding cryptocurrency designers. Using a bank to make transactions with an anonymous money platform may have them confused. Cryptocurrency articles usually focus on investing in platforms like Bitcoin and Ethereum. This article will talk about how to navigate banking with virtual currency.

Cryptocurrency is becoming more mainstream as banks are adapting to emerging technologies. But not all banks are the same, and a bank that offers crypto banking doesn't make it a “crypto bank.” For example, if you're planning to make frequent transactions with crypto the way you would cash, it's important to understand what services and structure you may need from the bank.

What's a crypto-friendly bank or crypto bank?

Banks handle deposit accounts and regular cash transactions. They also typically offer things like loans, credit cards and mortgages. A crypto-friendly bank may offer the ability to purchase, transfer and exchange virtual currency online.

For example, if you wanted to buy Bitcoin or Ethereum through your bank, you would deposit traditional currency into your account and then purchase a cryptocurrency. Your new crypto is stored within your bank via a crypto wallet. You can see your account balances within your account summary and you're all set.

Using your money for transactions is where banks start to show their differences. Some banks allow for debit cards that are linked directly to your crypto account. Others allow transferring crypto directly to retailers for purchases or to other people you know. But some institutions require you to sell your crypto in order to use your money.

It's important to understand how to access your crypto before deciding which bank to deposit it with. You should also consider if depositing with a traditional bank is right for you. Cryptocurrency exchanges like Coinbase provide the ability to buy, sell and transfer crypto. Also, crypto exchanges may have a broader range of cryptocurrencies, but traditional banks may only allow for a select few to be accessed.

Should I use cryptocurrency for regular daily transactions?

Short and sweet answer: probably not. Cryptocurrencies have been volatile. Bitcoin, the largest and most noteworthy crypto payment network, shed more than 60% of its value by June 2022 just shortly after hitting an all-time high in November 2021. A $1 bitcoin purchase dropped to about 40 cents.

The die-hard crypto fans are probably wringing their hands at this point pointing to now possibly being a better time to purchase crypto for long-term investing. Whether they're right isn't important when considering using crypto for daily needs.

What's important is the effect that volatility can have on your spending power. Coupled with inflation, it may feel extra painful when you have to sell more than double the amount of crypto you would have needed last year to buy a gallon of milk.

Can I add or deposit crypto funds into my bank account?

Depending on what exchange or wallet service you use, your ability to purchase or transfer crypto may vary from bank to bank. Typically, you would “deposit” or add funds to your crypto wallet by purchasing the currency directly from an exchange like Coinbase.

If you're trying to move money from your crypto wallet to your checking or savings accounts, you'd need to sell crypto in order to exchange it for cash. Then you'd withdraw that money from your crypto wallet to send to your bank account. The process of selling and sending is done simultaneously, so you won't have multiple steps to worry about.

How safe is crypto banking?

This is a bigger question than it sounds. Cryptocurrency is virtual, and the value of each crypto platform can vary. Cash deposits into your bank accounts are offered protection through the Federal Deposit Insurance Corporation (FDIC).^{See note1} Cash deposits are insured up to $250,000 per account beneficiary per bank. This type of insurance can be made available if your bank fails. This is a rarity in recent years, but 297 banks failed between 2009 and 2010.

Crypto “deposits” at your bank are not insured or backed by the FDIC. They remain in your exchange account or wallet. Cryptocurrency has no consumer protection or insurance plan to offset losses due to changes in value. Depending on which exchange you use, you may not have protection from losses due to hacking or theft. But the exchange may have institutional insurance or crime insurance in place.

If your accounts are compromised, you could become of victim of theft or fraud. Some exchanges, like Coinbase, are sizeable enough to refund you in the event your accounts are hacked due to a breach, but there are limitations.^{See note1} If you use a poorly secured password or fail to adequately protect your credentials with things like two-factor authentication or device recognition, they won't cover resulting losses.