I’m one of the few people who can truly say I’ve built a bank from scratch—starting as a single individual in a small office and eventually obtaining a full banking license in one of the most highly regulated financial environments in the world, Australia.

I invited Marc Andreessen for a conversation on X (formerly Twitter), after the Joe Rogan interview. It is no surprise I didn’t receive a response when he’s one of the wealthiest and most influential figures in tech, and I’m certainly not even the richest person on my street.

At its core, a bank’s business model is straightforward: you act as a caretaker for depositors’ money. Your primary obligation is always to ensure that depositors can withdraw their funds in full, whenever they need them, within the terms of the contract. Profitability is achieved by carefully managing risk—both in holding deposits and lending them out—while making sure that, at all costs, you can make every depositor whole.

In practice, this means thoroughly understanding and mitigating risks. To do so means we identify every possible scenario, assess its likelihood and potential impact, plan how we’d mitigate the risk, and determine the residual exposure. Our regulators then review this work, probing relentlessly, testing our assumptions against extreme hypotheticals: floods knocking out our data center, hackers encrypting our backups, simultaneous runs on accounts associated with crypto exchanges—every remote yet plausible crisis is considered. We then refine and repeat this cycle until the regulators are satisfied we understand every angle of our risk profile.

Every mitigation strategy we implement has a cost—whether it’s the liquidity we must set aside or the capital reserves we are required to hold. If the regulator believes any exposure is excessive, the bank must increase its capital buffers, making the business more resilient but also more capital-intensive.

From a traditional perspective, stable term deposits or mortgages are ideal for banks. They’re long-term, predictable, and well-understood, with minimal servicing costs. In contrast, servicing the crypto industry poses unique challenges. While there can be mutual benefits, the costs and constraints imposed by regulatory and liquidity requirements often clash with the crypto sector’s expectations.

Ultimately, it’s a cost/benefit analysis. Crypto-related accounts tend to require holding large liquidity buffers, limiting profitability. Banks must maintain extremely high-quality liquid assets because these crypto accounts can be called upon at any time, as they are generally setup as an on-ramp or off-ramp for the exchanges' customers. If a bank is required to hold 100% of those deposits in liquid form just to meet potential instant demand, the profitability of such relationships diminishes. Once you factor in operational overhead, compliance, and the capital required to ensure depositor safety, the margins shrink even more.

Capital adequacy is another critical complication. The bank must have sufficient Tier 1 capital to cover all depositors in the event of a collapse. This includes provisioning for winding up the bank and ensuring depositors remain whole even if certain assets become illiquid. The instability and occasional outright fraud we’ve seen in the crypto domain (e.g., the FTX/SBF scandal) means that funds could vanish or become tied up. As a result, banks often need to raise even more capital or reduce shareholder dividends. This is costly, and that cost must be considered in pricing and strategic decisions.

Finally, the operational and compliance costs associated with handling crypto transactions—from specialised staff to advanced monitoring systems—can be prohibitively high.

The reality is that the associated liquidity, capital, and operational requirements often make it an expensive proposition with limited upside for the bank. At the end of the day, the bank must always ensure depositors are protected, and that priority imposes constraints that may not align with the crypto industry’s expectations.