SoFi Technologies Inc., a diversified financial services firm, discontinued its cryptocurrency offerings. This decision comes despite a recent surge in token prices, driven by the company’s need to comply with increasing regulatory scrutiny from banking authorities.
SoFi, a San Francisco-based company established 12 years ago, initially focused on student-lending refinancing but has since diversified into various financial services. The firm received a bank charter in January 2022 under the condition of a two-year period to align its crypto operations with regulatory requirements. This period involved either securing necessary regulatory approvals for its crypto business or exiting the sector entirely.
Navigating regulatory landscapes
The regulatory landscape for cryptocurrencies has been intensifying. In August, the Federal Reserve announced an increase in its oversight of lenders’ involvement in digital assets. This scrutiny aligns with concerns expressed in January by both the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency regarding the volatile nature of cryptocurrencies. This heightened oversight culminated in the denial of a crypto firm’s application to become a member of the Federal Reserve and saw Metropolitan Commercial Bank exit the crypto sector earlier this year.
Despite SoFi’s significant involvement in the crypto world since 2019, including hosting an event at Bitcoin Miami, crypto-related operations have been a relatively minor aspect of its overall business. According to financial statements, brokerage-related fees, encompassing all crypto-related fees, amounted to approximately $6 million in the three months ending September 30. In comparison, SoFi’s total digital asset holdings were valued at $139.4 million as of the same date. Based on Bloomberg’s compiled forecasts, the company is projected to report around $2 billion in revenue for this year.
SoFi transitions to a new phase
As of the recent announcement, SoFi has ceased the creation of new crypto accounts. Existing customers have been directed to transfer their crypto holdings to Blockchain.com by December 19, with untransferred balances facing liquidation. The terms of the agreement with Blockchain.com have not been disclosed. In 2023, SoFi plans to refer its members to other crypto partners for their digital asset needs.
Blockchain.com, established in 2011, operates a popular crypto exchange and wallet service. It boasts the creation of 87 million wallets and handles a significant portion of Bitcoin network transactions. The company, having navigated its own challenges including exposure to the collapse of the Three Arrows Capital hedge fund and recent staff layoffs, has secured a $110 million funding round led by UK-based Kingsway Capital, indicating resilience in the fluctuating crypto market.
Impact on customers
SoFi’s decision to exit the crypto space has immediate implications for its customers. Users in specific regions face additional limitations. For instance, individuals in certain states must sell unsupported tokens like Avalanche and Sushi Swap, whereas New York State residents are entirely ineligible for the migration to Blockchain.com.
As of the third quarter, SoFi held nearly $140 million in cryptocurrencies, primarily in Bitcoin and Ethereum. The decision to wind down its crypto operations aligns with the broader context of regulatory pressures detailed in a Bloomberg report. SoFi’s bank charter, contingent on regulatory approval of its crypto business, allowed for potential extensions. However, as stated in SoFi’s 10-K annual report, the company had already acknowledged the possibility of a rapid conclusion to its crypto activities.
