FINTECH SNARK TANK COMMENTS
President Biden’s recent executive order regarding the responsible development of digital assets has helped drive up the price of Bitcoin, Ethereum, and other cryptocurrencies. According to Ari Redford, Head of Legal and Government Affairs at TRM Labs:
“The Executive Order is really a call for coordination – playing quarterback to ensure regulators work together to fuel a clear and consistent framework for crypto regulation rather than engaging in workflows. disparate.”
The executive order will help banks get to grips with the world of crypto and meet the demand of many Americans to get Bitcoin and other cryptocurrencies directly from their banks.
Americans want crypto from their banks
In a February 2022 survey of American consumers, Cornerstone Advisors found that one in five American adults owns some form of cryptocurrency. Unsurprisingly, there is a wide variation between generations.
A quarter of Gen Zers (21-26) are crypto investors, and nearly three in 10 plan to invest in 2022. Among Millennials (27-41), 30% have already invested in crypto, and 27 % plan to do so. This year. Among Gen Zers and Millennials with crypto, 40% bought or sold it five or more times in 2021.
There is promising news here for banks. Among Americans who already hold Bitcoin or other cryptocurrencies, more than half said they would definitely use a bank to invest in crypto if they could, with a further 42% saying they might.
Banks are dipping their toes into crypto
Banks seem to ignore this request.
According to Cornerstone Advisors What’s Happening in Banking 2022? study, only 1% of US banks provided cryptocurrency investing or trading services before this year. Going forward, around one in 10 plans to offer these services in 2022, with an almost similar percentage planning to offer crypto custodial/storage services or rewards.
Although regulators have received some positive advice on crypto business in 2021, there are crypto skeptics among bank executives. A senior bank executive told Cornerstone:
“Why are there more cryptocurrencies than US banks and credit unions combined? When will the consolidation and fallout happen?”
“[Cryptocurrencies] are not stable enough to be a legitimate payment mechanism, as the value may fluctuate during the transaction. Instead of pushing crypto ATMs and ways to create your own currencies, it would be great to focus more on how to solve problems like unaffordable housing and student loans.
Hmm. If people can make money from crypto investing, they might be in a better position to pay their rent or their student loan bills, right? However, there is no point in arguing with an anti-crypto banker, so luckily another bank executive remarked:
“We need to accept that cryptocurrency is here and start planning TODAY on how to approach this and not wait until it’s too late and we react rather than plan.”
The next banking and bitcoin boom
Banks have a long list of reasons for avoiding cryptocurrency: “consumers shouldn’t invest in it”, “too many regulatory issues”, “it’s too risky”, etc.
The greatest risk for banks is do not provision of cryptocurrency services.
Patrick Sells, chief innovation officer at NYDIGwhich partners with leading core banking system vendors to integrate encryption services, says encryption services help reduce bank risk:
“By not offering cryptocurrency trading services, banks potentially have greater exposure to anti-money laundering because they don’t know where the funds coming in are coming from.”
Banks also need to look at where funds are flowing outside for.
In January and February 2022, more money was transferred from banks to crypto platforms like Coinbase than to Amazon, Walmart and Target combined.
Source: Fiserv study on ACH transactions
Chris Nichols, director of capital markets at South State Bank, advise banks to set thresholds for when they will offer crypto services and answer the following questions:
- Will your bank offer a crypto product when X number of banks offer it?
- Will the bank offer crypto when they see Y amount of dollars coming out?
- Will the bank offer crypto when they can get a Z% ROI on the effort?
Nichols is also asking banks to think about what will happen when they need additional collateral for a loan and crypto is the only alternative.
In a June 2021 Fintech Snark Tank article titled The Coming Bank-Bitcoin Boom, I predicted that four forces would mobilize the banking industry to provide crypto services in 2022:
- Major Institutions Launch Crypto Offerings;
- The success of PayPal and Square in the crypto space;
- Strong consumer interest and demand; and
- Continued regulatory easing and guidance.
The big banks have been slow to move, but the other items on the list are gathering momentum, paving the way for a banking-Bitcoin boom in 2022.