Wary banks may be choking off the blockchain industry.

Aggressive de-risking is nothing new for digital currency businesses. Last year we released a report documenting the difficulty these startups had been having in securing banking relationships. Now the problem has gotten much worse with three exchanges, including the world’s largest, reporting that they are completely unable to process deposits or withdrawals, leaving customer funds trapped within their system. The Wall Street Journal has the story:

J.P. Morgan Chase & Co. prohibits banks it transacts with from dealing with virtual-currency exchanges, according to an internal document seen by The Wall Street Journal. Standard Chartered PLC also doesn’t process such transactions, according to a spokesman. To be able to transact with the wider financial system, bitcoin exchanges must play cat-and-mouse, said Bitfinex’s Mr. Potter, continually switching bank accounts. “They close one account, we open another somewhere else,” Mr. Potter said. “It’s a battle, but it looks like one that we appear to be losing, largely because we’re the largest such exchange in the world and we’ve got the biggest target painted on our back.”

Digital currency companies are not alone in overzealous targeting for this cut -off from the legacy financial system. Last week a Washington Post report showed that groups attempting to deliver aid to war-torn regions are suffering as well. While the goal of stopping money laundering and terrorist financing is a noble one, the incentives in place today might be driving regulators and banks to go far beyond what’s necessary and reasonable and could drive innovation overseas.