The crypto space is growing at a rapid pace and traditional banks are finally catching up and joining now. The graph below shows the TVL evolution from early 2020 (DeFi Llama).
To get an idea of bank investments, Markets Insider listed the biggest investments in the crypto space. Below are their top five choices, which should give you an idea of where the market is going.
1. Standard Chartered - $380 million and 6 investments
- Ripple XRP token, blockchain network provider.
- Cobalt, a trading technology provider based in the UK.
2. BNY Mellon - $321 million and 5 investments
- Fireblocks, allowing financial institutions to issue, move and store cryptocurrencies.
3. Citibank - $279 million and 14 investments
- SETL, whose ledger technology is used to move cash and other assets.
4. UBS - $266 million and 5 investments
- Axoni, whose technology is used to modernize infrastructure in capital markets.
5. BNP Paribas - $236 million and 9 investments
- Digital Asset, developing real-time trading and settlement applications using a smart contracts-based programming language.
The investment volume of banks and other organizations is growing immensely, which shows the confidence of institutions in crypto technology. However, we are still far from public acceptance for various reasons.
One of the main reasons for the lack of acceptance might be the users' experience with cryptocurrencies. We all know that the crypto space can be quite complex. There are too many options, and the technological gap could slow adoption for the mass market. However, some banks, whose systems are rather slow like the government, are finally ready to start moving towards a crypto-friendly system.
Reasons Banks Want Crypto
- Efficiency and innovation in internal transactions
Some banks have already created their own cryptocurrencies, where others are investing in existing projects in the crypto space. For example, the investment bank JP Morgan created their own currency, called JPM Coin. This coin will streamline processes in JP Morgan and will allow their customers to carry out micro-transactions worth $6 billion US dollars a day. By using crypto, the transactions are more efficient and traceable, enabling new opportunities for internal management. It also benefits their business partners as transactions can be performed in just a few seconds, thus much faster than current standard transfers (source: Researchgate).
2. A safe haven for USD loss via a new form of collateral
Dariusz Prokopowicz from a University in Warsaw adds to this: Could investment banks create a new type of collateral for transactions in the event of a possible strong loss of the USD dollar in the event of another global financial crisis connected with the currency crisis? Such a risk exists if the problem of growing public debt in the US is not resolved and banks in China cease to buy US Treasury bonds (source: Researchgate).
Adding new products to meet customer demands
Cryptocurrencies are used for investments and provide a new medium for exchanging goods or services. As banks need to serve their customers, they need to add new products to their portfolios to meet customers' needs. There are numerous cryptocurrencies with different risk and liquidity profiles. Banks need to consider risk and liquidity when choosing which cryptocurrencies to trade for their customers.
Examples of Banks Now Offering Cryptocurrency
- Vast Bank
Vast Bank for example is one of the first banks in the US that allows you to buy, sell, and hold cryptocurrency assets directly with your bank account. You can get the benefits of crypto combined with the simplicity and security of a bank account.
2. Bank of America
The Bank of America offers crypto futures trading to their customers. The CEO Brian Moynihan said in April 2020, "In terms of cryptocurrency, we have a policy that we've stated, and we haven't changed them. But we always are looking at what's going on in the markets to understand, both from the investment side and the transactional side, what's the interest of the customers out there and do we need to rethink our position”.
According to Blockdata, banks have invested the most in the area of crypto custody, which are services where companies manage their customers' digital assets for a fee. According to the report, 23 of the 100 largest banks are either building their own custody technology or integrating a technology provider's product into their own systems.
The Future of Crypto in Banks
In the future, many banks will offer cryptocurrencies because the market will grow and customers will need an intermediary for the time being to reduce the complexity of cryptocurrencies. As long as cryptocurrencies remain so complex, more banks will offer services and advice. This is certainly not what crypto is about and needs to be fixed in the long run. The fundamental idea must be decentralization and user empowerment.
About Reef Finance & Reef
Reef Finance is building Reef Chain, a DeFi blockchain built using Substrate Framework. Reef Chain provides high scalability, enabling almost instant low-cost transactions, and supports Solidity and EVM, allowing developers to seamlessly migrate their DApps from Ethereum without any change in the codebase. Our vision is to make DeFi easy for everyone to invest in and build DeFi applications on top of Reef Chain.
Reef Finance has developed a fast, scalable, and EVM-compatible chain for DeFi applications, Reef Chain. Reef Chain is currently in the canary version of the mainnet and the official mainnet is due to launch in the next couple of weeks. Reef Chain is a customized blockchain that allows developers to build DApps or deploy existing projects from Ethereum.Learn about Reef’s recent official news: Website | Twitter | Telegram