Bankify or Die: The Decision That Now Faces Centralized Exchanges

For BitMEX, the closure caps years facing lawsuits regarding the company's practices, which started in 2020 with its founders being criminally charged for failing to implement money laundering controls for the exchange. 

Since then, exchanges have been met with mounting compliance obligations that have squeezed profit margins, particularly among smaller operators. The implementation of the Markets in Crypto-Assets regulation (MiCA) in Europe prompted many exchanges and other smaller crypto companies to shut down for good. 

Some leaders expect forthcoming regulations in other parts of the world to have a similar impact, triggering a rush for licences and a product-led race to win users left without access to the services previously offered by unlicensed counterparts.

As a result, the makeup of crypto exchanges increasingly resembles that of a bank.  

Building towards a bank

Keith Grose, head of Coinbase UK, said three forces converged to push exchanges in this direction. Users wanted to manage more of their money in one app, crypto became regulated and banks began to see cost savings in blockchain settlement.

"Compliance is [now] a moat," he said, arguing that "getting licensed" was part of that. Coinbase received preliminary conditional approval from the Office of the Comptroller of the Currency (OCC) on 2 Apr to establish a national trust bank, after applying the previous October. It is also authorized under MiCA and holds permissions under the Markets in Financial Instruments Directive (MiFID) in the UK, where it expected to also to receive a Financial Services and Markets Act (FSMA) licence. "We're not a full fledged bank, but we are trying to get as far as we can in terms of what we can offer for our users," he continued. 

Other firms have taken the same route driven by regulators' willingness to move towards regulating digital assets. Circle received final OCC approval in July. Several other crypto firms, including Ripple, Paxos, BitGo and Fidelity Digital Assets, received conditional approvals in December, followed by exchanges Crypto.com and Kraken's parent company, Payward.

What the licensing brings with it goes beyond licence itself. "What banks actually sell to clients isn't just regulated products," Robin Nordnes, CEO and founder of Raiku, which builds execution infrastructure on Solana. "It's certainty, the guarantee that a settlement fires when it's supposed to, that a redemption window closes on time, that an instruction given today is honored at the moment specified. Crypto companies are building towards that." 

A strategy in certainty 

Crypto compliance platform Notabene has seen a broader shift in how firms approach compliance, helping drive the march towards bankification, according to Lana Schwartzman, its head of regulatory and compliance.

"It stopped being like a regulatory checkbox for the exchanges and it became a condition for receiving volume," Schwartzman said. "Compliance teams that used to fight for budget are now kind of on the revenue side. They're helping to drive that revenue."

She has seen the clearest evolution in the implementation of the Travel Rule, which requires a firm sending a crypto transfer to pass identifying information about its customer to the receiving firm. Early adoption was uneven, with some companies collecting the required data only after transactions had settled because counterparties in other jurisdictions were not yet obliged to respond. The industry dubbed this the "sunrise problem," referring to the rule taking effect at different times across countries and, in some cases, causing payments to be delayed or blocked.

According to Notabene data, the amount of Virtual Asset Service Providers (VASPs) that have said they would block payments if they don't receive a response from the receiving institution rose 431% between 2024-2025. Notabene alone has registered $4.8bn in transfers canceled, rejected or declined across its network in the last year. 

"Implementation today looks almost like payments engineering," Schwartzman said. "Mature implementations use the data, match the name, screen the counterparty, make a go or no go decision before settlement. That is the difference between compliance as paperwork and compliance as an actual control." 

The rule, according to a Notabene report, has the potential to reduce risk and fraud within the ecosystem and makes it easier for crypto firms to interact with regulated traditional institutions, thus expanding their potential reach. 

The losers of regulation

The end of MiCA's transitional window on 1 Jul underscored the consequences for firms that failed to put the controls needed for licensing in place. After the deadline, four of every five crypto firms in the bloc were restricted from trading. High compliance costs prevented smaller firms from progressing towards licensing, but even well-capitalized operators such as Binance faced closure in the zone. 

Coinbase's Grose expects the same to happen elsewhere as digital asset regulation is implemented. For him, the driving factor is whether a company can rebuild itself before legislations come into force. "A lot of crypto exchanges are having to learn how to grow up and become regulated financial services businesses," he said. 

"That's the challenge that's coming on the crypto exchange side of it, which organizations can step up to meet that bar and which ones can't. And how do you manage that internally?"

Beyond the compliance step-up, Grose said competition among the surviving crypto companies for users left afloat from this "cliff" will define the next few years of consolidation. One part of this, for exchanges, is proving that they are a company customers can trust. In a Sept 2025 survey conducted by Kraken, trust ranked as the number one factor for choosing an exchange, with 79% of respondents indicating they would rather pay higher fees for a trustworthy service.

The everything app vs the bank

In the month following MiCA's cut off date, Coinbase, OKX and Kraken implemented temporary sign-up incentives for users transfering deposits from Binance - which had failed to obtain a licence in the alotted time. 

Coinbase's campaign offers an instant 5% transfer bonus until 3 Aug for users that sign up for a Coinbase One subscription, while OKX went for an 8% bonus paid over 52 weeks which closes on 31 Jul. Kraken offered entries into a prize draw for every euro deposited on the exchange. 

The ongoing competition has brought the customer experience into focus, encouraging exchanges to expand the range of products they offer. 

Coinbase calls the strategy "the everything exchange," moving towards consolidation of multiple services within the same app, catering to convenience for the user. "Demand is the biggest thing," said Grose. "Even if the regulation wasn't there, the urge to get to this would be there."

The lifespan of fintech firms like Revolut, which launched in 2015 selling interbank exchange rates on a prepaid card, and N26, founded in Berlin in 2013, have followed a similar path, albeit rooted in traditional finance rather than crypto. Each began by taking one product and rebuilding it for the phone with the customer in mind. Those firms later added current accounts, savings, stock trading and, more recently, crypto, eventually becoming fully licensed banks while offering much more in their apps than those of a traditional incumbents.

"When fintech was just getting started, everyone had a different app for every different thing they were doing," Grose said. "And now, more and more of those use cases are combining."

Although many of today's largest exchanges began as platforms for buying and selling cryptocurrencies, their trajectory points to a similar progression. Both Coinbase and Kraken have leant into building out their product capabilities, launching services around tokenization, decentralized finance (DeFi) lending and prediction markets trading, while also catering towards day-to-day financial services, including supporting salary deposits and spending through debit cards. 

When asked whether Coinbase would become a bank, Grose said that he felt getting the full capability may not be necessary. "You can get a lot of the benefits without being a full fledged bank through stablecoins and tokenized equities," he said. 

"I don't think we want to get to a place where we're lending and taking on deposits, but we want to provide that banking type of monetary experience to our users through other services."

The convergence

Crypto may have become the convergence point at which the sectors collide, with exchanges, fintechs and traditional institutions approaching the same market from different directions. While licences have allowed crypto exchanges to open out their services to a wider market, the added regulation of the space "opens up the space to traditional financial firms," explained Grose. "They couldn't touch it before it was regulated."

The expectation is that the sectors will continue moving towards each other, even if they don't get fully merged. "We now see banks and exchanges as counterparties to each other rather than separate industries," said Schwartzman. "They've got to meet in the middle now."