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Big Banks are Prepared to Ride the Bitcoin Bull Run
After many years, traditional banking institutions all over the world are embracing cryptocurrencies and offering crypto-related services. While banks have likely been considering digital assets for quite some time, this is the first time that it has been made public knowledge. The previous uncertainty of banks has been attributed to the volatility of cryptocurrencies and the rapid way in which they gain and lose value. These institutions have taken the leap and joined the likes of payment service providers and hedge fund mavens as there appears to be a general shift towards cryptocurrency that has coincided with the all-time high price that Bitcoin hit this past December.
The Traditional Banks Involved
There are several well-known banks from different regions of the world who have opted to make the smart shift and are not only limited to technologically advanced regions such as Singapore and Switzerland but include Spanish Banks as well. In October this year, Gazprombank, which is a branch of Russia’s energy conglomerate, launched its cryptocurrency custody for the Swedish market and is considered to be one of the biggest milestones to take place this year. The bank made use of custody tech, supplied by a Swiss firm called METACO, that is institution-focused. The firm works closely with Avaloq which is a banking software provider with this development serving as foreshadowing for what would take place. More recently, the DBS Bank in Singapore announced the launch of its custody and crypto trading platform, of which 10% is owned by SGX National Stock Exchange, resulting in DBS becoming a frontrunner. In the same week that DBS’s announcement was made, The Swiss Digital Exchange revealed that it has gone into partnership with Japanese Bank, SBI Holdings, to create a digital asset exchange to service the Singapore market. However, the SDX shared that it is likely to only be completed early in 2022. Spain’s BBVA Bank has also revealed that it will also be making use of METACO’s custody software and will be basing its operations out of Switzerland. However, not much else is known about the crypto custody platform besides that it will be launched in January next year. In addition to these banks, a London-based bank, Standard Chartered, has announced a partnership with Northern Trust for crypto custody that is expected to go live early in 2021.
Big Changes
However, those who make use of Bitcoin Compass software and related services, have been provided with a bit of a sanity check. LMAX CEO, David Mercer, who has been called on for his expert insights has stated that while the headlines are great for showing that traditional currency markets are adopting cryptocurrencies, crypto banking services are still a long way off. According to Mercer, the banks are currently expanding on their existing custodian services and leveraging their technological abilities. By definition, becoming part of the crypto space is a two-fold requirement of taking delivery of and owning a digital asset. This is highlighted by an event that took place earlier this year in the US. The government pushed for banks to provide citizens with more crypto-friendly services in July by publishing a letter that permitted banks to offer crypto custody to clients. Earlier this month, a total of 5 months since the letter was initially issued, the Acting Comptroller hinted that he would provide further clarity on how banks in the US would achieve this by making use of blockchains as networks for payments. There is also evidence that the US government will be providing additional guidance to aid more banks in entering the cryptocurrency space. Less than 12 banks indicated that they would be interested in providing these services in August in response to the government’s Notice of Proposed Rulemaking.
Options Galore
Individual crypto owners are not the only ones who are poised to benefit. Cryptocurrency firms have also been provided with options for banking in 2020. A few years ago there was only a small handful of firms that had opted to bank the sector with a select few banks such as Metropolitan Commercial Bank, Silvergate Bank, and Signature Bank. Conventional bankers have always been apprehensive of not being able to track the source of funds, which is a core functionality of the asset, of the firms, and the extra measures needed to be taken to service crypto businesses. However, the three crypto-friendly banks previously mentioned are responsible for a small fraction of the assets that JP Morgan controls which are valued at $2,8 Trillion. JP Morgan became the most trusted option for many firms because the exchanges that the company used are subject to multiple regulators.
While many banks all over the world are taking their first steps, it is clear that banks will need to discover how to make returns. The increasing familiarity of banks with the sector has been taken as a long-awaited endorsement of a new global asset class.
