JUNE 30, 2021
9 min read
Do you know how the process of adaptation takes place within the human being? First, the person is totally overwhelmed by the change and experiences a loss of control over the situation — that’s called an alarm reaction. He/she is driven by emotions, such as irritation and frustration, which are the natural organism’s defense mechanisms during the resistance stage. But after a while, the exhaustion comes. Being tired of stress, one gets the nudge to release the biggest concerns by searching for the practical solution and taking responsibility for the further actions. And what’s interesting, we can extrapolate this adjustment scheme into the sphere of banking.
Going to the question of the banks’ attitude towards the cryptocurrency boom, it’s easy to trace these 3 adaptation stages. At first, they vehemently opposed the new assets type, seeing crypto as the intruder in the well-set traditional banking infrastructure. Then, some of the banks started their gradual movement to the crypto acceptance and its implementation into their services. It’s always better to find profit instead of stubbornly holding back from the innovation, right? And finally, the rest of the ‘still thinking what to do’ camp are now forced to determine their position too: either support the cryptocurrency or be left behind the latest fintech transformations and, consequently, be prone to market losses. So, let’s find out what happens with crypto and traditional banking relationships in 2021 for taking the right side!
Trend #1: Bitcoin Operations Through the Banks’ Accounts
After seeing the ever-rising Bitcoin price in 2021, the number of volunteers to experiment with this crypto by adding it to the existing banking accounts increased tremendously. With the US being the pioneer in cryptocurrency blend with traditional banking, Europe partially joined the initiative. As a result, for the first time in the history of banking, the customers acquired the chance to purchase, hold, and sell Bitcoin within their banks’ accounts. Isn’t this a big break? Definitely! But why did this exactly happen?
The obvious reason lays in the ultimate understanding of the consumers’ financial needs and behavior patterns. Namely, the US banks couldn’t anymore ignore the fact that their users became renegades to the other banking providers, such as Robinhood, PayPal, Coinbase, or Square, for executing the desired crypto exchange or trading operations. As traditional banks started to suffer from these wealth management tendencies, the logical solution to supply their clients with such an opportunity within their accounts appeared naturally. The recent study by the Cornerstone Advisors confirms that 60% of crypto owners are ready to keep their loyalty to the bank in case the latter provides them with the cryptocurrencies option. Thus, such an action on the part of the traditional banks is more than justified.
Who are these Bitcoin-friendly banks? Among the biggest US banking providers, the most well-known examples are Morgan Stanley (the first to allow Bitcoin ownership within 3 funds), Wells Fargo (believes in Bitcoin stability but permits its investment only for skilled customers), AllyBank, USAA (both encourage the swift Bitcoin exchange and seamless crypto purchase), JPMorgan, and Goldman Sachs (these 2 support the wider cryptocurrency types under their umbrella). If turning our attention to the other powerful banking advocates of Bitcoin, Wirex, Revolut, Backlays (the UK), SolarisBank (Germany), and National Bank of Canada (Canada) should be mentioned next.
As a result of these changes, the perception of Bitcoin as an asset is significantly altering. Not to be unfounded, let us reveal the case with El Salvador. It’s the first Latin American country that just recently legalized Bitcoin on the official level. Why so? Because of its decentralized character that simultaneously leaves hope for rich and poor. Brazil, Panama, Argentina, and Paraguay are now questioning this idea too, so we can only guess what legal boundaries of the Bitcoin expansion will be in a decade.
Trend #2: Banks’ Ethereum Acceptance to Profit from Blockchain Technology
You’ve already found out about Bitcoin’s merge with traditional banks, and now it’s time to dwell on the cryptocurrency that has the potential to outdo Bitcoin — Ethereum. Why does it evoke so much interest on the part of the contemporary banking community?
First, Ethereum is known for its high-level DeFi blockchain technology. The volatility of digital currencies is one of the primary reasons for their disapproval or denial in usage: no one is interested in the unstable financial conditions, and thus, the majority let things rip with traditional banking. But Ethereum isn’t the case! In contrast to the other decentralized and non-regulated crypto options, this currency is more enduring in the market. That’s why 80% of traditional banks are already on the strategy generation to inject blockchain technology into their businesses. For instance, Banco Santander and J.P. Morgan Chase are the ones at the top of the Ethereum implementation, and it looks like the rest won’t take very long to join.
Second, Ethereum is also characterized by elaborate transaction security and speed of operations. Just compare! Bitcoin allows only 5 transactions max per second, while Ethereum can cover up to 100,000 of them. Shocking? It happens because of the specific apps’ existence, which adds much to the significant automation of processes, and all transactions’ storage on the entire platform. Overall, the incredible saving of time and money on transaction fees made Ethereum a piece. And today it tangibly holds sway in some spheres like art, where the creators can sell their works through NFTs without any questions on authenticity and ownership. We expect that this trend will continue further with the banks’ enhanced tolerance to digital assets and desire to try the new technology for business prosperity.
Trend #3: Consumers’ Raised Need for Cryptocurrency Investing Services
Buying, holding, and exchanging cryptocurrencies isn’t all that sparkles the present-day consumers’ enthusiasm. Some of the digital assets fans are looking into the investment opportunities, and, unfortunately, not so many banking providers are ready to satisfy their appetite. In particular, 8 in 10 financial institutions exhibit no willingness to lend cryptocurrency funding services to their clients. Any assumptions? Ours is loud and clear: they either have no regard for the current consumers’ demand on this matter or just ignore it, underselling the crypto value. But let’s look at the facts first!
Have you heard that 15% of American banking users own Bitcoin or the other type of cryptocurrency? And what’s even more important, this figure is augmenting in correlation with the boost in the cryptocurrency cost. According to the latest estimates, 17% of Americans are inclined to invest in crypto this year, and the only skeptical population segment there is 55-year-olds, while the other age categories continue to express an interest in testing the digital money option. But what does prevent the banks from fulfilling this need? Probably, instability of market capitalization, crimes associated with Bitcoin, and the 2020’s Twitter hack. But is it sufficient for closing one’s mind and jumping to the hasty decision?
Of course, no, and even the small banking players have grasped this kernel of truth! That’s why we know such Bitcoin-tolerant American players as VAST Bank, First Boulevard, and Quontic Bank. They totally realize that the fear of modern innovations is a bad scenario for the company’s future positioning and valuation on a global scale. So, why don’t the others think so?
Trend #4: Not Only Banks Are Interested in Crypto Now!
Who else is into edgy while it concerns crypto usage? In the first place, it’s technology companies as they’re in the constant search for new financial services instruments. One of such is Libra Association (now Diem Association), which together with its co-founder, social media Facebook, issued the new stable coin on blockchain for reducing the transaction costs merely to zero and fighting with the volatility hazard. The currency is regulated and includes within its Council such like-minded members as Uber, Spotify, Vodafone, Lyft, and many others. Besides, Libra isn’t open compared to the other cryptocurrencies: though it can be widely used, not everyone can access its data and confirm the transactions. As a result, Libra serves as the unique, liquid market that enables trade and global payment services. In 2021, learning from its previous flop, Diem Association decided to relocate its main operations from Switzerland to the US, which should attract new serious players for partnership.
Besides, investment firms and venture capital funds belong to the list of the crypto-involved parties as well. The former helps both newbies and experienced customers to earn more money with the help of crypto by guiding them in crypto investing and tokenization. In its turn, the latter is specialized in methods to build and enlarge your capital for startups’ funding or retail portfolio expansion. Altogether, these two polar businesses have something in common: they look at crypto as the perfect integration tool that can strengthen their infrastructure and gain more value for their users and investors. One of the illustrations of this approach is provided by Revolut. Though the company’s core mission revolves around global payments, it also allows you to make investments into US stocks, commodities, and crypto. This fintech supports the money remittances in 5 cryptocurrencies and stores your digital assets for the next crypto transactions. Isn’t it a good example to follow? Definitely! And Mastercard and BNY Mellon have already reached such a conclusion and announced their plans to welcome crypto into their custody.
The trend also gained its support from the side of the powerful industrials and manufacturers. One of them is Tesla. The company spent 1.5bn on Bitcoin, transforming it into a corporate payment option. And though there were some reconsiderations and falls after this event, Elon Musk still favors crypto as the reflection of today’s digital economy. However, not all are so optimistic about the crypto future! Specifically, the U.K.’s Financial Conduct Authority and the Swiss bank UBS recently warned the public on the possible future losses on crypto. But there are always antagonists to modern innovations, isn’t it?
Expected Outcomes of Traditional & Crypto Markets Convergence
So, we’ve already thoroughly discussed who is involved in the crypto and banking fusion, and now let’s point out the expected consequences of this phenomenon. Otherwise, which results will this transformation bring soon?
- Improved infrastructure. In fact, the logical chain is the following: easiness of crypto transactions => more investment into the industry => improved infrastructure. This interconnection clearly signifies the removal of barriers between banks and investors/clients.
- Opened road to the new assets. The aspiration to costs reduction and transparency will stimulate the creators to search for better digital assets alternatives. Consequently, new types of digital money can appear in the market.
- New level of payment services. Here we’re speaking about the design of the new financial products that will ease up the banking users’ life and provide even more convenience, automation, and data management.
- Cut costs on compliance abidance. With the advanced ways of capital optimization, the world economy should profit too. Namely, not only the transaction fees should be lower, but it also relates to the documentation and adherence to the regtech standards.
- _Stronger position of the U.S. Dollar. _As it’s thought to be the key payment currency that is tightly linked to stable coins, it can lead to the Dollar’s extreme circulation in the market. In one way, it can be seen as a danger to the global economy, while, in the other way, it’s a drawback that can be compensated.
So, Is It All About Fintech Disruption?
As any solid change in the industry is both admired and hated by the public, which is always subdivided into the two opposite interest camps, the same concerns the cryptocurrency blend with traditional banking. Though not everyone believes in the future of cryptocurrencies, it doesn’t cancel the innovative trends that are happening these days. It’s up to you to decide to whom party you belong! And if you’re eager to listen to the professional opinion on your crypto-based banking project, just contact DashDevs!