Recently, I have been hearing a lot about Bitcoin banks, as I live in El Salvador. At first, I was a little apprehensive because isn’t Bitcoin supposed to save us from the centralized monster that is banking: central and otherwise? But perhaps there is a place for Bitcoin banks…
Bitcoin’s rise continues to test the boundaries between decentralization and institutional adoption. As nations grapple with integrating Bitcoin into regulated systems, El Salvador’s 2025 Investment Banking Law offers a preview of what “Bitcoin banks” might look like worldwide. The law allows investment banks to operate entirely in Bitcoin and other digital assets, targeting high-net-worth investors with $250,000 or more in liquid assets under strict oversight by the Central Reserve Bank and the Superintendency of the Financial System.
Bitcoin was designed as a peer-to-peer system, enabling individuals to transact directly without the need for intermediaries. Its pseudonymous architecture and self-custodial design are central to its philosophy of financial sovereignty. Yet as Bitcoin matures, the rise of Bitcoin banks (institutions that hold, lend, or manage Bitcoin under regulatory oversight) signals a shift toward convergence with traditional financial models. El Salvador’s Investment Banking Law, enacted in August 2025, illustrates how this institutional evolution could play out globally.
El Salvador’s Case Study
El Salvador’s law permits specialized investment banks to operate entirely in Bitcoin or digital assets, provided they serve “sophisticated investors” with at least $250,000 in liquid assets. These banks require a minimum capitalization of $50 million and will be overseen by both the Central Reserve Bank and the Office of the Superintendent of the Financial System. They may offer digital-asset custody, advisory, and financing services and can apply for licenses as Bitcoin Service Providers under the nation’s existing framework for Bitcoin and digital assets.
This regulatory structure effectively places Bitcoin banking within a prudential framework more akin to traditional wealth management than grassroots adoption of Bitcoin. While El Salvador’s model targets high-net-worth individuals, similar initiatives are appearing in jurisdictions seeking to blend Bitcoin’s flexibility with institutional safeguards.
(Note that El Salvador is not the only place where this is under consideration. There have been long-standing efforts in the United States to get a Bitcoin bank. Additionally, the United Arab Emirates (especially Dubai and Abu Dhabi), Switzerland, Singapore, Hong Kong, and the United Kingdom have all been working to bring Bitcoin banking into their regions.)
Custodial Banking Versus Bitcoin’s Ethos
As a Bitcoiner who appreciates its decentralization, I am watching with skepticism as the idea of Bitcoin banks emerges. At a philosophical level, Bitcoin banks collide with one of Bitcoin’s defining tenets: self-custody. The protocol was designed to enable users to verify and control their funds independently, without relying on intermediaries. Introducing custodial banks reintroduces layers of trust, which is precisely what Bitcoin was designed to eliminate. Holding one’s own keys is a declaration of independence from centralized authorities, while depositing Bitcoin into a regulated entity effectively restores that dependency.
Moreover, Bitcoin banks inherently compromise the pseudonymity of transactions. Know-your-customer (KYC) and anti-money-laundering regulations strip away the privacy that Bitcoin’s design accommodates but does not guarantee. While this may enhance financial system transparency, it also sidelines one of Bitcoin’s subtle promises: the ability to transact privately, outside the surveillance architecture of global finance.
Consumers: Convenience Over Custody
From a consumer perspective, Bitcoin banks could reintroduce traditional banking conveniences, such as security, liquidity, and customer service, within a Bitcoin context. While self-custody enables financial freedom, it also burdens users with technical challenges and the risk of losing access to their savings if private keys are misplaced. For users in countries with reliable banking systems, Bitcoin banks may offer interest-bearing deposits, seamless lending using Bitcoin as collateral, and compliance-based safety nets similar to those of traditional banks. This appeals to those who value comfort and institutional trust over personal autonomy and sovereignty.
Yet this model contradicts Bitcoin’s foundational principle: “not your keys, not your coins.” The trade-off is between personal control and operational convenience, echoing Jan3’s Samson Mow’s view that most people prefer simplicity and reliability over absolute decentralization.
Investors: Structured Access and Liquidity
For investors, Bitcoin banks offer regulated exposure to BTC that is not available through exchanges or ETF products. Unlike ETFs, where investors own shares representing Bitcoin, these banks would hold Bitcoin directly on balance sheets, enabling clients to hold, borrow against, or transact with actual BTC, including using it as collateral for loans. This directness introduces both opportunities and regulatory safety.
Bitcoin banks may also offer bespoke investment products, such as Bitcoin-denominated bonds or yield-bearing accounts, within a compliant framework, which appeals to hedge funds and family offices that require institutional-grade custody and compliance.
Businesses: Banking in a Bitcoin Economy
For businesses, Bitcoin banks can fill a vital gap that exchanges and ETF providers cannot: providing operational banking services. Companies that want to pay suppliers or employees in Bitcoin currently face fragmented infrastructure and compliance hurdles. A Bitcoin bank could provide liquidity management, payment processing, and credit all denominated in BTC, while retaining regulatory legitimacy.
For firms that rely on Bitcoin payments, these banks could function as treasury partners, providing both Bitcoin-native and fiat liquidity. This is especially meaningful for international trade or remittance-heavy operations, where speed and borderless settlement are crucial.
Potential Global Applications
Globally, the concept of Bitcoin banks could expand along several lines. For institutional investors, such banks could provide capital efficiency and regulatory clarity by allowing funds, pensions, and corporations to hold Bitcoin directly on balance sheets under controlled conditions. For nations with weak banking infrastructure, Bitcoin banks could offer cross-border liquidity, stable stores of value, or funding channels insulated from local currency volatility.
Yet these advantages come with trade-offs. Custodial structures can mute the decentralized dynamics that make Bitcoin exceptional. If Bitcoin ownership becomes mediated by regulated custodians, the asset’s resistance to censorship, inflationary policy, and financial exclusion may erode. The paradox lies in institutional adoption potentially achieving mass stability at the cost of individual autonomy.
The Philosophical Divide: Necessity or Fiat Mindset?
Bitcoin banks revive the question of whether integrating Bitcoin into the regulated financial system undermines its decentralized ethos. Supporters argue these banks promote mass adoption by providing institutional safety and liquidity. Critics counter that they “bend Bitcoin to a fiat mindset,” reintroducing middlemen and counterparty risk that Bitcoin was meant to eliminate.
In essence, Bitcoin banks represent Bitcoin’s institutionalization, bridging it with traditional finance rather than replacing it. While self-custody remains the purest form of Bitcoin ownership, Bitcoin banks cater to a pragmatic audience seeking access, returns, and regulatory comfort. Whether this hybrid model enhances Bitcoin’s legitimacy or waters down its mission will depend on whether these institutions serve users’ sovereignty or merely recreate the old system on new rails.
A New Layer of Bitcoin, Not a Replacement
Rather than an outright contradiction, Bitcoin banks may represent a parallel layer of interaction, a sort of bridge between sovereign money and institutional finance. For many, self-custody will remain the truest form of Bitcoin ownership. For others, regulated custodians offer a pragmatic solution balancing accessibility and compliance.
What emerges is a bifurcated ecosystem: one path retains Bitcoin’s roots in self-sovereignty and pseudonymity; the other integrates it into the architecture of global finance. The challenge for policymakers, investors, and users alike will be to ensure that Bitcoin’s core properties of openness, neutrality, and resistance to control remain intact, even as new institutional frameworks seek to surround it.
Ultimately, though, the real question boils down to the purpose of Bitcoin…
Is it meant to be integrated into a centralized, corrupt regulatory system, or is it meant to disrupt this system and create a new vision of how we use and interact with money
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About the Author
Deanna Heikkinen is an author, historian, and educator with over 15 years of experience in teaching. Holding a Doctorate in Education and Master’s degrees in both History and Anthropology, she brings deep academic insight and a love of storytelling to her exploration of world history, Western civilization, and the evolution of money. She co-authored, with her husband Joel, the 2004 book Shells to Satoshi: The Story of Money & The Rise of Bitcoin, which follows the development of money from ancient exchange systems to digital currency. Her 2025 book Ownschooling: Bitcoin, Sovereignty, and Educationencourages families to reimagine education, sovereignty, and financial literacy in an increasingly decentralized world. She is also developing a multi-level children’s book series that introduces the story of money, from cowrie shells to Bitcoin, to young readers.
As the founder of The Money Wisdom Project, a new nonprofit educational initiative, Deanna seeks to educate children and communities about the history of money and Bitcoin. The organization is working to create comprehensive curriculum packets on the history of money and Bitcoin to distribute free of charge to teachers, schools, communities, and Bitcoin circular economies. The project’s mission is to deepen financial and historical literacy while donating books on the history of money and Bitcoin to schools and public libraries worldwide, empowering learners of all ages to connect the lessons of history to today’s monetary systems.
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