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Crypto Banking: What it is, is it safe and how to start

Earn interest on, spend or withdraw loans against your crypto assets.


Disclaimer: This page is not financial advice or an endorsement of digital assets, providers or services. Digital assets are volatile and risky, and past performance is no guarantee of future results. Potential regulations or policies can affect their availability and services provided. Talk with a financial professional before making a decision. Finder or the author may own cryptocurrency discussed on this page.

As cryptocurrency like Bitcoin, Ethereum and Litecoin gains mainstream acceptance, fintech companies are offering versatile ways for investors to manage, spend and earn on their cryptocurrencies. But while crypto banking products offer the potential for strong rewards — with potential returns as high as 14.5% or more, depending on the platform — they don’t often provide the key safety nets of traditional banking. The more you learn, the better equipped you’ll be to decide if the rewards of this new breed of banking outweigh the risks.

What is crypto banking?

Crypto banking is a term used to describe digital exchanges or fintech companies that offer the ability for you to buy, sell, store and manage your cryptocurrency from a digital wallet. These services are designed to replicate the user experience of traditional or online banks, sometimes removing the need for you to ever personally interact with cryptocurrency.

What you can do with your cryptocurrencies beyond that depends on the platform. Many offer the ability to make payments through crypto debit cards and earn higher returns than you’ll find at your local bank. Some allow your crypto to be used as collateral for loans. And all-in-one crypto platforms like Blockfi allow you to buy, sell and earn crypto through products like crypto-backed loans, trading accounts, savings accounts and a credit card.

2 ways to get involved in crypto banking

You can get involved in crypto banking through two common, beginner-friendly routes:

  1. Owning cryptocurrency and using a crypto banking service to lend it out to other users, earning you a high return in interest.
  2. Depositing USD into a crypto bank and permitting it to convert your USD into crypto to lend out and pay you interest on your total balance.

Carefully read the fine print of the crypto exchange you’re interested in to make sure it offers the services you’re looking for. You may be required to lock your cryptocurrency for a specified period of time before you can begin using it, for instance, or even wait a period of time before you can withdraw it.

What is cryptocurrency?

Cryptocurrency — or “crypto” — is a type of digital money stored and traded on online platforms called exchanges. It’s recorded and tracked using a digital ledger called the blockchain, which is shared and accessible by all users across a network. Bitcoin (BTC) and Ethereum (ETH) are two popular cryptocurrencies that make up more than 7,000 digital coins.

6 types of crypto banking products

Once you own cryptocurrency, compare products that allow you to manage, spend and earn rewards on it:

  1. Crypto debit cards. Prepaid crypto cards convert your cryptocurrency into a USD balance that’s ready to spend, while crypto debit cards linked directly to your crypto wallet convert your crypto coins to USD at the time of your transaction.
  2. Crypto savings accounts. Crypto savings or interest accounts allow you to earn interest on your cryptocurrency by loaning your stored crypto to other people, generating returns expressed as an APY.
  3. Crypto credit cards. Like traditional credit cards, crypto credit cards offer the opportunity for you to earn rewards on purchases, often in the form of crypto.
  4. Crypto loans. Loans that use your crypto holdings as collateral allow you to access the value of your crypto in USD without having to sell, trigger a tax event or miss out on future gains.
  5. Crypto lending. Crypto lending involves funding a crypto-backed loan in order to earn returns from the interest borrowers pay. While some peer-to-peer crypto lending platforms let you do this directly, typically crypto lending platforms pool money from deposits into lending accounts to finance the loans they offer.
  6. Crypto trading accounts. Many dedicated crypto exchanges allow you to trade USD for cryptocurrency or even swap one cryptocurrency for another.

5 benefits of crypto banking

If you own enough cryptocurrency to park it in an account, you may be able to take advantage of high returns and rewards:

  1. Sky-high yields. Companies like Crypto.com advertise interest rates as high as 14.5% APY. Platforms come with different requirements on the highest returns, often requiring you to invest in the platform’s native cryptocurrency to max out your interest.
  2. Easy access to your assets. Crypto banks are partnering with household names like Visa and Mastercard, making it easier for you to spend — and earn rewards on — your crypto.
  3. Returns in stablecoin. Many crypto banks offer products that can help you mitigate crypto volatility by investing in stablecoins — coins pegged to a “stable” fiat currency like USD. Earning interest on stablecoins may shield you from market volatility, as these types of cryptocurrencies are designed to maintain a value equal to the US dollar.
  4. Access low-interest financing. By offering up your crypto as collateral, you can access loans at lower rates than a traditional bank’s, often without a credit check or ID — and without having to sell your crypto.
  5. Minimal credit checks. For now, crypto banking offers an opportunity for the marginally banked and unbanked to access financing based only on the value of their crypto holdings — and not their credit score.

5 risks of crypto banking

Cryptocurrency is a speculative investment, and today’s crypto banks lack protections and safeguards you may be used to:

  1. Offers little to no reserves. Crypto banks can offer high APYs because they don’t have to keep reserves traditional banks typically need to cover the cost of loan defaults. This enables them to generate a higher ROI — but also results in less protection if several high-stake loans fail.
  2. No federal protection. Unlike traditional banking, there is no protection from government organizations such as the Federal Deposit Insurance Corporation (FDIC) or Securities Investor Protection Corporation (SIPC). If a crypto bank goes bust or gets hacked, your cryptocurrency holdings may be lost.
  3. You might need to give up control. A draw of cryptocurrency is that it’s controlled by whomever holds the private keys to it. Yet some crypto banks and wallets are custodial accounts that require you to give up and trust them with your keys.
  4. Rates fluctuate with the market. While rates for crypto savings accounts can be high, the value of your earnings can fluctuate with the market. Sharp market movements can leave you unable to react to those changing market conditions.
  5. Complicated tax reporting. Crypto users are responsible for tracking all crypto transactions, including trades, exchanges, donations and payments for goods and services with cryptocurrency. Failure to understand how could result in an IRS audit or a crypto tax fraud investigation.

Custodial vs. noncustodial accounts

You may come across the terms custodial and noncustodial when researching platforms, accounts or wallets.

Noncustodial wallets like Coinbase leave you in control of the private keys to your cryptocurrency. You’re the sole owner of your cryptocurrency across transactions on the platform.

Custodial accounts like Nexo require you to hand over your private keys, trusting the platform to act as the custodian for your crypto and manage it on your behalf.

One isn’t necessarily better than the other. It comes down to your preferred level of control and how you want to secure your assets. If you’re new to crypto, you might like the idea of a platform looking out for your cryptocurrency. If you’re a veteran, you may want to retain control of the assets you’ve built.

How crypto banks protect your money

Crypto banks understand the risks associated with their services, and top companies have developed protections to mitigate those risks for consumers.

Cold storage

Crypto banks often allow you to choose between hot or cold storage of your assets. Hot storage means that your crypto is stored online, where it’s easy for you and the platform to access. Harder to access is cold storage, where your crypto is stored offline, offering deeper protection against hacking and breaches.

Third-party insurance

And while crypto isn’t protected by the FDIC or SIPC, some crypto banks provide safeguards through pooled insurance and partnerships with third parties. For example, Nexo partners with both BitGo and Ledger on a $375 million insurance policy through Lloyd’s of London and Arch and Mars that covers a custodian’s assets in the event of a security breach or employee theft.

Bug bounties

Binance and other top platforms support “bug bounty” programs, which invite the help of ethical hackers and cybersecurity experts to intentionally breach security protections and expose vulnerabilities — helping to strengthen protocols and stay a step ahead of bad guys trying to gain access to your virtual assets.

Is crypto banking regulated in the US?

Crypto banks that operate within the US must be licensed by the Financial Crimes Enforcement Network (FinCEN) and abide by anti-money laundering (AML) rules and regulations. It means that crypto exchanges are required to report suspicious activity and put in place a strong AML program that includes standard “know your customer” — or KYC — procedures when onboarding and verifying users.

Still, not all platforms have strong policies in place. A 2019 report by CipherTrace revealed that a third of the top 120 crypto exchanges have weak KYC policies.

The value of crypto tax software

Every time you sell, trade or use cryptocurrency for purchases, it’s considered a taxable event. Unlike fiat currency, which is considered an asset, cryptocurrency is considered to be property by the IRS, subjecting all virtual currency transactions to property taxation rules.

To stay compliant, you’re expected to keep track of every trade and transaction made with your cryptocurrencies.

Crypto tax software can make it easier for you to handle taxes associated with any profits gained from cryptocurrency markets by automating the process of learning tax codes and keeping track of trades and transactions you make. They also help you stay current with rapidly changing laws.

Compare crypto banking products

Use the tabs to sort and compare crypto account types to find the crypto banking products for your financial and investment goals.

1 - 2 of 2
Name Product Supported cryptocurrencies Insurance
Gemini Earn
Finder Rating: 3.8 / 5: ★★★★★
Gemini Earn
40
N/A
Watch your cryptocurrency earn up to 8.05% APY with this nationwide account. Not FDIC insured.
Crypto.com Earn
Finder Rating: 4.6 / 5: ★★★★★
Crypto.com Earn
40+ cryptocurrencies and stablecoins available
N/A
Earn top-tier APYs on more than 40 cryptocurrencies and stablecoins. Not available in New York and not FDIC insured.
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Compare up to 4 providers

1 - 4 of 4
Name Product APR LTV Accepted Collateral Issued Currencies
Celsius Borrow
1% to 8.95%
25% to 50%
BTC, ETH, CEL, LINK, MATIC, ADA, DOT, LTC, UNI, EOS, AAVE, XLM, OMG, BCH, ZEC, MANA, DASH, SNX, PAXG, BAT, USDC, ZRX, BSV, COMP, USDT, TUSD, ETC, UMA, KNC, MCDAI, BNB, LUNA, GUSD, PAX, XAUT, BNT, WDGLD, SUSHI, 1INCH, XTZ, WBTC, AVAX
USD, USDC, USDT, TUSD, MCDAI, GUSD, PAX
Celsius offers 3 different interest options depending on the total value locked in your account.
Nexo crypto credit lines
0% to 13.9%
Starting at 30%
BTC, ETH, USDT, NEXO, DOT, AVAX, MATIC, SOL, ADA, XRP, BCH, LTC, BNB, EOS, XLM, LINK, TRX, PAXG, LUNA, UNI, DOGE, USDC, PAXG, TUSD, DAI
USD, EUR, AED, ARS, AUD, BGN, CAD, CLP, CNY, CZK, DKK, EGP, GBP, GEL, GHS, HKD, HRK, HUF, IDR, ILS, INR, JPY, KES, KRW, MAD, MXN, MYR, NGN, NOK, NPR, NZD, PEN, PHP, PKR, PLN, RON, RUB, SEK, SGD, THB, TRY, UAH, VND
Get approved in seconds for a credit line that uses single or multiple cryptocurrencies as collateral.
BlockFi Cryptocurrency Loans
9.75% to 4.50%
20% to 50%
BTC, ETH, LTC, PAXG
USD
Access the value of your crypto assets without cashing them in.
Helio crypto loan
4% to 9%
50% to 75%
BTC, ETH, LTC, XRP
USD, Stablecoin, Crypto
Borrow up to $3 million on the value of your cryptocurrency.
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1 - 3 of 5
Name Product Rewards Staking requirement Supported cryptocurrencies
OnJuno
N/A
N/A
Not stated
A free account for crypto and cash that earns a 1.2% bonus rate plus 5% cashback on purchases from participating retailers.
Wirex
Up to 8%
N/A
11
The Wirex debit card lets you spend dollars or crypto in stores and online while earning up to 8% back. It is not available in NY and Hawaii.
Crypto.com Visa Card
Up to 5%
Up to 400,000
250+ cryptocurrencies
Fund your card with fiat currency or crypto, and earn up to 5% back with each purchase. Plus, get rebates on qualifying subscriptions such as Spotify and Netflix. Not available in New York. Only US dollars in your account and on your card are protected by the FDIC.
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Compare up to 4 providers

1 - 5 of 5
Name Product Rewards Staking requirement Supported cryptocurrencies
OnJuno
N/A
N/A
Not stated
A free account for crypto and cash that earns a 1.2% bonus rate plus 5% cashback on purchases from participating retailers.
Wirex
Up to 8%
N/A
11
The Wirex debit card lets you spend dollars or crypto in stores and online while earning up to 8% back. It is not available in NY and Hawaii.
Crypto.com Visa Card
Up to 5%
Up to 400,000
250+ cryptocurrencies
Fund your card with fiat currency or crypto, and earn up to 5% back with each purchase. Plus, get rebates on qualifying subscriptions such as Spotify and Netflix. Not available in New York. Only US dollars in your account and on your card are protected by the FDIC.
Coinbase
4%
N/A
166
It's FDIC insured for up to $250,000 in fiat currency. But cryptocurrency isn’t backed by the federal government. Available in all states except Hawaii.
Unbanked Blockcard
Up to 6.38%
30,000 to 145,000
14
The Unbanked Blockcard was created after the merger and rebranding of fintech company Ternio and its flagship product Blockcard.
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1 - 5 of 5
Name Product Starting price Transaction limit Supported exchanges Automatic generated tax forms
Koinly
$0
Unlimited
371 exchanges
IRS Form 8949, Schedule D
Koinly calculates your cryptocurrency taxes and helps you reduce them for next year.
CryptoTrader.Tax
$49
Unlimited
100+ exchanges
IRS Form 8949, Income Report, Capital Gains Report, End of Year Positions, Audit Trail Report, Tax Loss Harvesting
Connect your exchanges, import trades, and download your crypto tax report within minutes.
CoinTracking
$0
Unlimited
Supports 140 exchanges, wallets and blockchains
IRS Form 8949, International tax reports, Fincen 114
Analyzes trades and generates real-time reports on profit and loss, the value of your coins, realized and unrealized gains, reports for taxes, etc.
TokenTax
$65
500 to 30,000
It only supports 85 exchanges and wallets through API and CSV uploads
IRS Form 8949
Crypto tax software platform and a full-service cryptocurrency tax accounting firm.
Coinpanda
$0
25 to 3,000
Supports over 500 exchanges, wallets and blockchains
IRS Form 8949, Income Report, Audit Trail Report, Schedule D, International tax reports
Reliable and easy-to-use tax solution for cryptocurrencies, DeFi, and NFTs.
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The future of crypto banking

Regulators in the US are calling for stronger control and oversight of cryptocurrency as it becomes more mainstream. The Federal Reserve is weighing the pros and cons of launching a digital currency that’s equivalent to the US dollar — like a stablecoin — in the future. And politicians are drawing up legislation to create a digital commodity exchange that would register, monitor and report cryptocurrency trades.

What’s clear is that cryptocurrency isn’t a fad. We’ll keep you updated on the regulatory landscape as it evolves to keep up with crypto’s meteoric progress.

Disclaimer: This page is not financial advice or an endorsement of digital assets, providers or services. Digital assets are volatile and risky, and past performance is no guarantee of future results. Potential regulations or policies can affect their availability and services provided. Talk with a financial professional before making a decision. Finder or the author may own cryptocurrency discussed on this page.

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