Cryptocurrency lender Nexo announced on Tuesday that it had acquired a stake in the U.S.-based Summit National Bank. This news allows Nexo to provide banking services to Americans as a licensed institution.
Nexo is a company with over $4 billion in assets under management and became the first cryptocurrency firm to receive a federal banking license by purchasing a stake in a bank.
Announcement
The official announcement from Nexo stated that it had closed an agreement to acquire an unknown share in Hulett Bancorp, the owner of the Summit National Bank. Nexo intends to provide several banking products, including checking accounts and loans backed by cryptocurrencies, through Summit National Bank, which has a compliant federal bank charter with the Office of the Comptroller of the Currency.
With Bitcoin bouncing around 31% of the previous all-time high, the Nexo charter is a positive step forward for the cryptocurrency sector overall. Nexo meeting federal capital adequacy guidelines during bearish market conditions is a positive signal for long-term growth and adoption of digital assets.
Through mergers and acquisitions, other fintech firms like SoFi and LendingClub, which provide crypto trading on their platforms, also acquired federal banking charters.
Acquisition Details
The company dubbed the move an industry-changing transaction. However, the total amount Nexo invested was not made public in the announcement.
Hulett National Bank was first incorporated in Wyoming in 1984 and is also known as Summit National Bank. The company has also established branches in Montana and Idaho and provides loans for business, agriculture, real estate, mortgages, and construction.
According to company projections, the purchase will enable Nexo to increase its presence around the country. The banking license allows the company to introduce products like checking accounts and provide better legal protections, such as FDIC insurance.
State Regulators Come After Nexo
The bank charter announcement comes just one day after Nexo was served with lawsuits from eight U.S. states – alleging that the company’s interest-earning accounts are unregistered securities. Vermont issued a Cease and Desist Order asserting that more than 93,318 Americans had contributed more than $800 million to Nexo interest-earning accounts as of July 31, 2022.
The state charges all claim that Nexo deceived investors into thinking it was a licensed and registered platform. The New York Attorney General Letitia James also sued the crypto platform on behalf of more than 10,000 citizens who had purchased the alleged unregistered securities.
According to the press release, New York regulators claim that Nexo provided consumers with interest-earning accounts, which allowed investors to deposit assets with the business in exchange for yields of up to 36% on their deposits.
Nexo Pushes Back
Nexo responded to the allegations about its product and interest rates. Claiming their product’s interest rates are not as high as regulators allege, and the platform offers nominal rates.
According to Nexo, its marketing materials do not mention the one asset that earns a 36% interest rate. Point out that the most well-known assets, like Bitcoin, barely produce a single-digit percentage of returns.
Since February, Nexo no longer onboards new U.S. clients to its Earn Interest Product following actions against BlockFi. Despite these setbacks, Nexo seeks to set itself apart from the competition by committing itself to cooperate with and work alongside regulators.
It is rare for a cryptocurrency firm to receive a bank charter. Nexo presents an interesting case as it clashes with state regulators while simultaneously becoming the first crypto firm to buy enough stake in a bank to receive a federal charter.
Conclusion
Nexo is now the third cryptocurrency company to be granted a federal bank charter in the U.S. The first two were Protego Trust Bank and Anchorage Digital Bank, which applied and gained conditional approval in January and February 2021. Nexo, in contrast, paid its way into a federal bank charter rather than submitting an application and waiting for approval. Long-term details are still uncertain how the multiple cease and desist orders from State regulators will impact the company’s future operations.
