What a "Crypto Bank" Actually Is, and What It Is Not

"Crypto bank" is a phrase that describes a feeling rather than a licence: one app where money and crypto sit side by side. Underneath, the two halves are almost always held by different entities under different rules, and the protections that apply to one do not extend to the other.

The two halves, and why they are separate

Nearly every product sold this way is really two products stapled together in an interface.

The money half — the euro, pound or dollar balance, the IBAN, the card — is a regulated payment service. It sits with a licensed bank, or with an electronic money institution, or with a partner bank whose name is in the small print.

The crypto half — the wallet, the trading, any yield product — sits with a crypto business, which may be the same company, an affiliate, or a third party entirely.

They look like one account because the app draws them on one screen. They are not one account, they are frequently not even one company, and the difference becomes visible at exactly the wrong moment.

What is protected, and what is not

The money half may benefit from the protection appropriate to its structure: a deposit guarantee scheme if a licensed bank holds it, safeguarding if an electronic money institution does. The neobank safety guide sets out which is which.

The crypto half is not covered by a deposit guarantee scheme. Deposit protection schemes protect deposits — a specific legal thing — and cryptoassets are not deposits. This is true no matter how bank-like the interface is, and it remains true where the same company runs both halves.

That is not an argument against holding crypto. It is an argument against assuming a protection you have not checked, which is a different and much more common mistake.

The yield question, stated carefully

The most consequential feature these products have offered is interest on crypto. It is worth being precise about what that involves, because the mechanism is nothing like a savings account.

Paying a yield requires the asset to be doing something — being lent, deployed, or otherwise put at risk. A savings account pays interest because a licensed bank lends against a regulated balance sheet with a guarantee scheme behind the depositor. A crypto yield product pays because the asset has been put to work somewhere, and the return exists precisely because the risk exists.

The historical record of that model is not a matter of opinion. Nuri — the Berlin service formerly called Bitwala, and one of the most credible names in the category — filed for insolvency on 9 August 2022 and wound down that December, having partnered on an interest-bearing crypto product. We wrote up what happened and what became of customer money, because the question is still asked and most search results still describe a live product.

How to tell what you are actually using

• Find the legal entity, not the brand. It is in the terms, the app's legal section, or the footer. Expect more than one: frequently a different company for the money half and the crypto half.

• Check each entity separately on the relevant register. Two entities means two checks. How to check a bank licence is the procedure; run it once per entity.

• Ask what protection applies to each balance, and get it in writing. The right question is not "is my money safe" but "which scheme, at which entity, up to what limit, for which balance".

• Read what the yield product actually does with the asset. If the documentation will not say plainly where the return comes from, that is the answer.

• Assume the two halves can fail independently. A perfectly solvent partner bank does not rescue a failed crypto affiliate, and vice versa.

The custody question, which is the one that actually decides things

For the crypto half, the single most important fact is who controls the private keys, because that determines what you own and what you are owed.

Custodial means the provider holds the keys and your balance is a claim against that company. The experience is easy — password recovery works, support can help — and the exposure is that if the company fails you are a creditor in an insolvency rather than an owner of an asset. Whether the assets were segregated from the company's own, and how clearly, becomes the entire question at that point.

Non-custodial means you hold the keys. The provider cannot lose your assets in its own insolvency because it never had them, and equally cannot help you if you lose the recovery phrase. There is no support ticket for that.

Most "crypto bank" products are custodial, because the convenience they are selling depends on it. That is a legitimate trade, and it is a different trade from the one the money half offers. It is worth asking the provider directly, in writing, whether assets are held custodially, whether they are segregated from company assets, and what happens to them in an insolvency — and to treat vagueness on any of the three as an answer.

Where the category is genuinely useful

None of this makes the category worthless. Holding a card, an IBAN and a wallet in one interface is a real convenience, the onboarding is usually far better than a traditional broker's, and having the fiat rail and the crypto rail at one provider removes several transfer steps.

The correct way to use it follows from the structure: treat the money half as the account it is, treat the crypto half as an investment held at a company, and size each accordingly. Our crypto banking guide and crypto banking explained cover the products themselves, and how to earn yield on crypto covers the mechanisms behind the rates.

The one-sentence version

A crypto bank is usually a payment institution and a crypto business sharing a login, and the protection you have depends entirely on which of the two is holding the balance you are looking at.

This is general information, not financial or investment advice. Cryptoasset regulation is changing quickly and differs by jurisdiction; check the current position with the relevant regulator before relying on anything here.