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Will Banks Eventually Embrace Crypto and Serve as Portals to the Ecosystem?

Since the advent of crypto, the industry and banks have been like oil and water. Banks harbor the fear that cryptocurrencies will shake things up and render them irrelevant. Crypto wants to remove intermediaries and red tape in traditional finance that excludes billions from the system.

However, at this point it’s almost impossible to shrug off crypto. Massive buy-ins by institutional investors plus a general blowup of the industry have signaled to banks that cryptocurrencies are here to stay. Down the road, banks will realize the time-old saying “if you can’t beat them, join them”.

The truth is banks that don’t board the ship, risk missing becoming irrelevant as more people gravitate towards the faster, cheaper, and more transparent crypto transactions. Banks are at a crossroads. But will they eventually embrace crypto and become portals to the ecosystem?

A photo of popular banks

Banks’ Anti-Crypto Rhetoric

Banks have a history of bashing cryptocurrencies with rhetoric such as “cryptos are a fraud”, “cryptos have no intrinsic value,” and “cryptos are not a good store of value”. Below are some scathing takes about crypto from leaders in the banking sector.

Bank of England governor Andrew Bailey has painted cryptocurrencies as a worthless investment option, saying crypto investors would lose all their money.

Bank of America’s “Bitcoin’s Dirty Little Secrets” slams Bitcoin for its volatility, “intrinsic lack of value,” and environmental impact. BofA’s chief investment strategist Michael Hartnett described the current Bitcoin bull run as “the mother of all bubbles”.

JPMorgan CEO Jamie Dimon called Bitcoin a fraud — even threatening to fire JPMorgan traders who would engage in Bitcoin trading, saying “it’s against the bank’s rules and it’s stupid”.

Banks are Feeling the Heat

As crypto continues to gain momentum in the finance space, banks face the dilemma of whether to meet crypto head-on or ignore it and risk obsolescence. The bank setup has left many on the sidelines — thanks to bureaucracy, high cost of services, and to an extent, over-regulation.

Financial inclusion means people and businesses everywhere can access meaningful, convenient, and affordable products and services – something that the traditional banking sector has elusively chased.

The increasing uptake of crypto means marginalized communities get more access to financial services. Witness Venezuelans, who have turned to Bitcoin to beat sky-high inflation of the peso. Similarly, Nigerians protest against police brutality turn to Bitcoin to raise donations after banks shut them out.

These cases illustrate how banks are either becoming irrelevant or simply failing to adapt to the banking needs of the modern user.

The Dilemma Facing Banks 

Banks only have two options: start dabbling in crypto or doggedly stick to fiat.

Embracing crypto means banks will influence its uptake in mainstream finance by innovating services that address consumers’ emerging needs.

Sticking to fiat means that when crypto-based innovations take place in the financial sector, banks will be watching from the sidelines.

The real issue here is not even the uncertainty of integrating cryptocurrencies into traditional banking — it’s the risk of missing out on new and forward-thinking opportunities.

Banks Already Warming up to Crypto   

Some leading banks have already hinted at crypto adoption. BNY Mellon, which is America’s Oldest Bank, announced that it would start holding, issuing, and transferring cryptocurrencies on behalf of its asset-management clients. Already the bank is discussing plans with its clients on how to bring their digital assets on board.

American multinational investment bank Morgan Stanley hinted at considering Bitcoin as an investment asset. The bank’s bet on Bitcoin is on the premise that the crypto’s “market value can increase significantly.

Despite past protestations, JPM Chase, another American banking giant, introduced a Bitcoin fund in July to help its high-profile investors tap into the Bitcoin market.

Germany’s Commerzbank earlier in the year funded an Israeli cryptocurrency startup that PayPal later acquired. The country’s second-largest lender has never openly appraised Bitcoin as a legitimate investment, but actions signal the bank has warmed up to Bitcoin.

The bank’s backing of the crypto startup and the startup’s subsequent acquisition by PayPal (which integrated cryptocurrencies) are undoubtedly strategic moves to prepare for cryptocurrency adoption.

The CBDC Factor 

The introduction of central bank digital currencies (CBDCs) is one force that cannot be ignored in this equation. If a central bank introduces a digital currency, banks in that country will inevitably have to toe the line.

China was the first major economy to create CDBC. The Asian nation drew 750,000 recipients into a lottery to test drive the digital Yuan in a pilot program. As we speak, participants can already spend the central bank issued crypto in stores and on online purchases using a special app.

In May, Tanzania’s president urged the country’s central bank to look into cryptocurrencies. Her speech hinted at possible efforts to develop a CBDC or adopt a major cryptocurrency.

Fifteen European countries are currently developing a central bank issued digital currency. Upon completing this ambitious project, banks across Europe will almost have little choice but to support this digital currency, and possibly integrate existing cryptos.

Russia has also joined other central banks in stepping up efforts to digitize their national currencies. Moscow said it would be doing a test drive for the digital ruble in 2022.

There is no doubt that central banks across the globe are warming up to the idea of issuing digital currencies. The question is, are banks prepared, technology-wise and regulatory-wise, to support crypto transactions?

Hurdles Banks Should Expect

While banks may be feeling the need to prepare for crypto adoption, the path is not without obstacles. Regulators have traditionally been the biggest bottleneck to crypto adoption.

In 2017, Vietnam’s central bank prohibited the use of cryptocurrencies in payments. The central bank noted that crypto activities, including “issuing, providing and using” Bitcoin and other cryptocurrencies would be subject to prosecution. Despite the ban, crypto adoption has been on the rise in Vietnam with a huge amount of peer-to-peer use.

In June, the UK’s Financial Conduct Authority banned Binance from conducting any regulated activity. As a matter of fact, the crackdown on Binance has been going on across the UK, Europe, Japan, and China.

Final Thoughts

Cryptocurrencies’ entry into mainstream finance is a matter of when, not if. Banks have traditionally shunned crypto, but this time their options look limited. Already, we see banks acting as some sort of portals into the industry and there’s a good chance this union will continue to evolve. Crypto enthusiasts will be watching with bated breath.

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Hope Mutie

About the Author

Hope Mutie

Hope Mutie is a professional writer and editor whose interests include fintech, cryptocurrency, and blockchain. She engages with crypto audiences by curating content that’s fun-to-read, educational, and offers unmatched value. Hope is part of the brilliant team at Go Full Crypto – a podcast and service that enables your transition into crypto.

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