Cryptocurrencies have significantly grown popular over recent years, with traditional financial institutions, such as banks wanting a share of the revolutionary technology.
This has seen a U-turn to their initial stand regarding the industry. Not only do individuals and crypto enthusiasts want to buy crypto but there is a general mainstream interest. Bitcoin (BTC) reached its all-time high in 2021 at over $60,000 per coin which saw more firms as well as individuals on exchanges and trading sites to buy Bitcoin.
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Increased crypto adoption effects
The increase in crypto adoption has led to the need for regulation. The Digital Asset Summit panelists agree to this and acknowledge that more clarity is needed in regulation before financial institutions can fully immerse themselves into the industry. Banks have aggressively partnered with crypto firms over the last year. The Head of Fidelity Digital Assets in Europe, Chris Tyrer, added that these institutions are the future access points of the crypto market.
This discussion occurred on Tuesday on a panel with other executives in London at a Digital Asset Summit organised by Blockworks. In the last year, the conversations in the industry are shifting from the technology encompassing blockchains and distributed ledger to Web 3, metaverse, and creator economies.
Many people have recognised the possibilities of this technology. There is more clarity in the vision and direction of the industry. Tyrer claims that it has to some extent solidified its investment thesis. He also pointed out that there has been overwhelming demand from the customary client bases of banks
TradFi and crypto accelerate integration
In the last week, BNY Mellon unveiled that a section of its institutional clients would be able to buy bitcoin. They would also buy crypto such as Ether. It would facilitate these groups in holding and transferring Bitcoin and Ether through a crypto custody platform for its United States residents. Mastercard also recently revealed a program to assist financial tech companies and banks hold, sell and buy crypto. Approximately two-thirds of Mastercard’s 2022 New Payments Index publication in June detailed they prefer their current financial institutions to provide crypto-related services, including allowing them to buy crypto.
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Takeaways from Blockworks’ panel discussion
At the panel discussion, Bank of America Managing director, Alex Demyanov, highlighted it is common for individuals preferring to develop a trusting relationship with their bank to shift business elsewhere. He acknowledged the decentralisation concept of the crypto industry but points out that it is more secure, efficient, and convenient to further a relationship with the same institution
The takeaway from the panelists was clear. Traditional finance and blockchain technology will integrate over time.
The collapse of crypto firms, including Three Arrows Capital, could have been avoided with this integration. Head of the Distributed Ledger Technology Centre of Competency within the Investment Bank at Credit Suisse, Previn Singh, mentions that capital buffers may have assisted these players.
The importance of regulation
The panel executives demonstrated that banks and asset managers have a higher risk aversion, especially in a largely unregulated field, compared to fintech companies funded by venture capitalists. The European Parliament’s ECON Committee confirmed the MiCA bill last week. It flags off the introduction of provisions on supervision, environmental safeguards, and consumer protection for crypto assets. It will pass into law in early 2024.
The United States is still debating on the best action in regulating the industry. There is an executive order for government agencies to weigh the risk and prospects for digital assets for users to buy Bitcoin and other cryptos. A crypto framework has also been published to enhance studies on central bank digital currencies, DeFi and NFTs. HSBC’s Head of Fintech Partnerships, Rita Martins, highlights that big banks would not facilitate their clients to buy Bitcoin and other cryptos without regulation.
Increased involvement of traditional finance in crypto
As several jurisdictions sort out regulations, BNY Mellon and Mastercard’s recent developments indicate that large institutions are being more involved in the crypto-verse. CEO of EXMO crypto exchange, Serhii Zhdanov, hailed Mastercard for acknowledging that crypto can outgrow its existing industry. Mastercard’s partnership with crypto firms provides a sufficiently tested process where Mastercard can deal with compliance issues. Zhdanov points out that soon every bank will have crypto in its product line.
CEO and Co-founder of Minima, Hugo Feiler, highlights that the prior view of crypto being antagonistic to the traditional banking sector is fading. Crypto’s integration with mainstream payment mechanisms eases the process to buy Bitcoin and other cryptos. It provides a linkage between crypto and TradFi systems.
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