Banks Dive Deeper into Cryptocurrency Markets Despite Regulatory Pressure – Nasdaq



Recent reports reveal both small banks and multi international institutions are considering offering crypto services to both retail and wealthy clients, a big achievement for the new asset class towards mainstream adoption. Increasing demand from clients have started to accelerate banks in launching crypto services, according to a research report from Bank of America.

Another research report from NYDIG, a subsidiary of $10 billion New York-based asset manager Stone Ridge, shows that hundreds of banks have been rolling out their crypto programs. In a partnership with fintech giant Fidelity National Information Services, NYDIG is involved in enabling U.S. banks to offer bitcoin and other crypto services to clients in the months ahead, according to the two firms.

“What we’re doing is making it simple for everyday Americans and corporations to be able to buy bitcoin through their existing bank relationships”, said Patrick Sells, head of bank solutions at NYDIG. “If I’m using my mobile application to do all of my banking, now I have the ability to buy, sell and hold bitcoin.”

Currently, cryptocurrency services from banks are limited to institutional investors. Meanwhile, retail investors are using crypto exchanges and fintech platforms, including PayPal and Square, to reach out to one of the best-performing asset classes in the world. 

“Most people can’t invest in things that institutional investors get to invest in,” the president of NYDIG Zhao said. “With bitcoin available through your bank to be purchased with as little as $1, now you have an attractive asset that’s available to be owned by anyone in any amount. We think that’s huge for economic empowerment.”

Big Banks Plans to dive deeper into the Nascent Asset Class at the Retail level

While smaller banks are quickly seeking to add crypto services, big banks like JP Morgan Chase, Goldman Sachs, HSBC, and the Bank of America are also looking at opportunities in the emerging market. Early this year, Morgan Stanley took the leading position among big banks by offering bitcoin funds to its clients. Additionally, the largest banking giant, JPMorgan, is planning to offer a crypto product in combination with NYDIG. The chart below highlights the number of services big banks are offering at present:

Crypto plans by banks

Last month, Wells Fargo said the bank would launch professionally managed cryptocurrency funds for wealthy clients. The bank views digital currencies as an alternative investment, according to a Wells Fargo Investment Institute report titled “The investment rationale for cryptocurrencies.”

“Crypto-currencies have gained stability and viability as assets, but the risks lead us to favor investment exposure only for qualified investors, and even then through professionally managed funds,” the report said.

However, some banks are struggling to find ways to pass the regulatory threshold. Goldman Sachs Chief Executive Officer David Solomon expressed these concerns in Congressional testimony. “We do clear Bitcoin futures,” he said. “We provide advice to clients, particularly institutions, and high net worth individuals that have an interest in gaining exposure, although often they go to other places to gain those exposures.”

Regulatory Pressure is a Big Hurdle

Regulatory pressure has been wiping off hundreds of billions of dollars from the cryptocurrency market over the last month after Chinese Central Bank advised regulators and enforcement agencies to speed up clampdown on crypto activities. According to a Bank of America report led by analyst Erika Najarian, who compiled responses from banks about their willingness to facilitate crypto transactions, several banks blame tougher regulatory restrictions as the biggest hurdle in supporting crypto transactions.

The report shows several banks believe the future applications of cryptocurrency would be concentrated in commercial, custody, and commercial payments rather than retail. The BofA report also revealed that JPMorgan is actively assessing if they will take cryptocurrency in accounts while Citi is inclined towards tokenization then facilitating cryptocurrency transactions.

Banks Can No Longer Overlook a Big Revenue Generation Opportunity

Banks are preparing to capitalize on increasing interest in cryptocurrencies and in the distributed-ledger technology from both retail and institutional investors. Of course, crypto products and services have the potential to outstrip traditional banking products over the long term. This looks certainly true when considering a big crypto revenue boost for fintech firms in the past couple of quarters. Coinbase’s IPO, which valued the company at $85 billion, clearly reflects investor’s interest in digital currency services.

Besides regulatory pressure, there is no reason for banks to avoid the revenue-making opportunity and being disrupted by cryptocurrency-oriented competitors.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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