Corporate Finance, DeFi, Blockchain, Web3 News
Corporate Finance, DeFi, Blockchain News

Year of the Crypto Bank

by Ilias Louis Hatzis.

The Chinese New Year is coming up in couple of weeks and 2021 is a Year of the Ox. That’s a bull, but a “regulated” bull. And 2021 will be bullish on the convergence of crypto and traditional financial services.

Keeping up the positive crypto momentum from 2020, the Office of the Comptroller of the Currency (OCC) in letter on January 4, 2021 announced it’s latest crypto-friendly move: “Our letter removes any legal uncertainty about the authority of banks to connect to blockchains as validator nodes and thereby transact stablecoin payments on behalf of customers who are increasingly demanding the speed, efficiency, interoperability, and low cost associated with these products,” Acting Comptroller of the Currency Brian Brooks said in a statement.

The coronavirus pandemic may have played its part in spurring banks to roll out commercially viable cryptocurrency products. A study commissioned by Mastercard, found that more than half (53%) of the world’s population uses banking apps, more than they were before the pandemic. The research also showed that people are moving away from cash, with 64% saying they will use physical money less following Covid-19. In a year when Covid-19 shifted everything to online, including online banking, you’d expect that it would be a stellar year for challenger banks. But, the reality is that neobanks stumbled in 2020. The coronavirus lockdown hurt downloads. Research from Priori Data revealed that Revolut, Monzo, N26 and Starling saw their growth rates fall by between 18% and 36% in their home markets. In the US, traditional banks are adding an average of 180% more new mobile app users per month than digital banks are, over the past six months.

We are also seeing crypto-first players are making moves into the neobanking space. Bitwala now combines mobile banking with crypto trading in a single app, with a Mastercard debit card included. You probably already know that Kraken, a cryptocurrency exchange based out of San Francisco, is now the first-ever cryptocurrency business in the United States to become a bank. Ziglu, a UK company, is insuring users against theft of crypto funds for up to 50,000 GBP from cybercrime.

From where I stand it appears that banking and crypto are coming together fast. I expect to see DeFi, crypto and banks integrate even more. Prepare for a major shift in banking this year. Banks will be adopting cryptocurrencies.

There are several developments in the pipeline for 2021, that include the long-awaited Facebook-led digital currency Libra, industry-defining U.S. cryptocurrency regulations and Well Fargo announcing that it would be looking closer at the digital asset space.

In 2019, JPMorgan Chase introduced JPM Coin, its own cryptocurrency, which it uses primarily for funds transfers and faster transaction settlements among clients. Last spring, JPMorgan Chase began extending banking services to Bitcoin exchanges Coinbase and Gemini. Three years earlier, the bank’s CEO, Jamie Dimon, called the currency “a fraud” and said he would fire “in a second” anyone at JPMorgan found to be trading in it. In 2017, he said: “You can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart.”

Morgan Stanley has been offering blockchain-based investment products since 2018. Goldman Sachs last year dismissed Bitcoin over its volatility, saying in a May report, “We believe that a security whose appreciation is primarily dependent on whether someone is willing to pay a higher price for it is not a suitable investment for our clients.” However, the bank issued a request for information to explore digital asset custody, according to CoinDesk.

More than 100 banks have tested instant payments with the use of the cryptocurrency Ripple. The European Central Bank has set up a task force to explore offering a digital euro, “not because we want to keep up with fashionable trends,” says ECB executive board member Yves Mersch, “but because we have to be ready.”

This year seems to be on the same track, especially from regulators.

The OCC since the summer has been warming up to crypto. Late last year, crypto firms BitPay and Paxos filed applications with the OCC to become national trust banks. Kraken is the first cryptocurrency bank in the US, since September 2020. It already offers banking and funding options to existing customers. Kraken can operate in multiple jurisdictions without having to deal with state-by-state compliance plans. Kraken is currently working with Silvergate Bank to offer SWIFT and FedWire funding options to US customers. More and more of these kinds of partnerships will become the status quo in the near future.

Services like these are bringing cryptocurrencies into the mainstream, and make them a standard everyday experience.

In the coming years, I can certainly see a scenario where people will be able to move between bitcoin and cash a lot easier in their accounts, for example if some people pay them in Bitcoin, some in dollars and others in euros. People will be able to go to a bank and access credit products, savings accounts and investments that can host both crypto and fiat assets.

Cryptocurrencies are a vehicle with great potential, with the potential to create new global financial leaders.

Crypto financial products can outperform traditional banking products, offering greater efficiency, less bureaucracy, and more transparency. This is exactly what Sir Jon Cunliffe, deputy governor for the Bank of England, talked about last year, in his speech on February 28, 2020. These new crypto offerings could draw away so much capital from current accounts, that banks would have difficulty lending.

This is why both traditional and neobanks should be launching a variety of cryptocurrency offerings, especially challenger neobanks. Time is running out, before all of them are disrupted by cryptocurrency-oriented competitors.

The next few years will more than likely bring cryptocurrencies and blockchains into the mainstream. Innovation in financial services is just getting started. The real risk is not about uncertainty, but about missing out on opportunities.

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Ilias Louis Hatzis
Ilias Louis Hatzis
Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG.

Ilias Louis Hatzis is the founder and CEO at Kryptonio, a “keyless” non-custodial bitcoin and cryptocurrency wallet, that lets users manage bitcoin and crypto, without private keys or passwords.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Lundi 25 Janvier 2021