Should banks be more open to crypto?
After the cryptocurrency was created amidst the global financial crisis in 2008, it continues to further challenge traditional financial institutions. And, while the traditional stocks keep falling down with no signs of regaining an upward direction, the crypto market keeps its stable way up. With Bitcoin trading at over $6,250, the value of crypto assets is a lot higher than the value of the traditional currency.
Considering the recent wave of new favorable legislation for the crypto industry passed worldwide, a lot of us keep wondering why banks still stay relatively closed to crypto. Here are the top three concerns major banks have regarding the crypto adoption.
#1. Current crypto market cap exceeds even the largest banks
The current market cap for Bitcoin exceeds the largest U.S. bank, JPMorgan Chase, and is compared to Bank of China’s. Ethereum market cap is similar to Morgan Stanley. With other coins also on a stable rise, there’s not much traditional banks can offer as an alternative to crypto, therefore without a proper restructure that has to take place in the financial industry, there’s a risk banks wouldn’t be able to properly handle crypto, and as a result would lose their customers and investors to cryptocurrency as well.
#2. Decentralization as a backbone of cryptocurrency
Blockchain technology is a backbone of all cryptocurrency transactions, and while being an enormous resource to improve all areas of our lives, it might not be the most favorite technology for banks, as it essentially diminishes the third party between the sender and the receiver of the assets – something that banks made their profits off for thousands of years.
#3. Big adoption costs, absence of proper regulations
As all regulated financial institutions, banks are required to follow a rigorous set of guidelines, including those related to tax compliance and tracking the source of funds. Since a lot of governments still fail to introduce an adequate set of relevant regulations in the crypto industry, it would cost banks big money to adopt and service the cryptocurrency at this point. And, while most financial experts agree that crypto is on its path to replace traditional money, the banks still have to undergo a huge adoption process to service it in order to survive.
Major banks already make money on crypto
Even though not currently servicing crypto, JPMorgan isn’t hesitant to make money on it. The biggest U.S. bank is reportedly buying crypto on the European exchange. According to public records of Nordnet trading logs, two JPMorgan associated firms — JP Morgan Securities Ltd and Morgan Stanley — bought roughly 3 million euro worth of XBT note shares, which was the biggest amount of crypto investment on the list in comparison to other major banks trading crypto, such as Goldman Sachs and Barclays.
First cryptocurrency bank opens in Zurich, Switzerland
Known for its friendly financial climate, it’s not a surprise Switzerland was one of the first countries in favor of crypto. Coming next year, Zurich will offer the world’s first bank focused exclusively on crypto. The company behind the historic move is Switzerland-based startup SEBA Crypto AG that raised over $100 million worth of Swiss francs for financing the enterprise. According to the company’s statement, after the grand opening in Zurich more branches will follow.
“SEBA wants to bridge the gap between traditional banking and the new world of crypto” and that “with safety, transparency and performance as core values, our ambition is to become a market leader in the convergence of traditional finance with the crypto economy,” said SEBA CEO Guido Buehler.
If granted all necessary licenses and permits, SEBA will officially become the first bank to work with both traditional money and digital cryptocurrency, ensuring the safety and transparency of all operations.
Former JPMorgan executive believes banks will switch sooner than we think
Despite a record-breaking rise in Bitcoin value, most banks are still staying away from crypto based on several factors outlined above, and one of them is absence of proper government regulations in the industry. However, some of the major banks are already overcoming the obstacles. For instance, Goldman Sachs is reportedly moving ahead with plans to set up the first Bitcoin trading operation at a Wall Street bank. According to financial analysts, more banks will soon follow.
“I think it’s coming sooner than people probably think,” said Amber Baldet, former head of J.P. Morgan’s blockchain arm.
The more eligible custodian solutions will be offered in the crypto market, the more banks will join, Baldet says. With the most recent custodian license approval that Coinbase received, as well as a custody solution proposed by Japan’s Nomura Bank, financial analysts estimate more traditional banks joining crypto market already within the next few years.