Opinion: Hey Banks... Welcome To The Crypto Market!

This column does not necessarily reflect the opinion of the editorial board of Benzinga.

The crypto industry is maturing rapidly as more and more players from traditional finance enter the space. 

Now, with the recent surge in crypto markets pushing Bitcoin’s price quickly from $20k, $30k, $40k to $50k and even breaking the $60k mark, there is no single hedge fund manager or institutional investor who hasn’t already had a conversation about diversifying into digital assets.

The crypto industry is maturing from its days of memes and unicorns and is instead faced with a true test of maturity: welcoming traditional finance and, in particular, banks as important participants in the ecosystem. 

Banks Don’t Innovate; They Recognize Innovation.

Banks have a long history of following trends rather than starting them. 

In fact, the earliest banking institutions were created to provide loans to the public.

From there, uncertainties in the markets caused a rush on banks, creating the need for the FDIC. Bond markets, mortgages, and car loans would become some of the innovations that banks integrated into their systems over the years.

Banks meet the moment, but they do not make the moment. When it comes to crypto, the trend is no different.

Just recently, banks have reached a tipping point where they are no longer actively blocking crypto but instead pivoting to find ways to support digital currencies and crypto. 

Silvergate and JPMorgan Chase were some of the earliest banks collaborating with crypto companies to innovate their current business models to include blockchain technology.

This indicates that the banking industry’s even most conservative stalwarts will likely start to consider moving into crypto as well.

Crypto is more than just buying and selling assets. Crypto brings real innovation in specialized payments systems and niche banking products that are leading all financial industries.

Let’s Be Good Custodians to the Banks, Not the New Class of Robber Barons 

Banks need to work with crypto companies that have led the industry with innovative technology, time-tested security measures, and liquidity to support the influx of new crypto customers - both from their large accounts to the small.

Banks can get a running start on crypto integration by working with the top exchanges in the market.

We have a chance to help banks from the start and guide them on their crypto journey that will prioritize their customer base and can be the good custodians who shepherd the banks into the industry with support and education.

By sharing the industry in a way that showcases the value proposition of crypto, we can help traditional financial institutions understand this new way of expedited payment processing and holding more value over time. 

The Threat of Disintermediation Doesn’t Have To Be Real

Ever since Bitcoin arrived on the scene, the “threat” of banks being disintermediated has existed but never really considered real given the nascent stage of Bitcoin.

But Bitcoin has matured, and the crypto markets have evolved with the emergence of DeFi to challenge the existing intermediaries even further.

We are quite possibly witnessing the emergence of a parallel financial system, which will present an alternative to the existing system if it were to mature and develop –- based on intermediaries and third parties charging high fees and offering slow services (when it comes to global payments). 

Traditional finance, being built on the backs of brokers and facilitators intermediating between buyers and sellers, is fearful of disintermediation. Between precedence and job security, banks understand using intermediaries, so it feels safe.

But some consumers also feel safe with intermediaries for certain services - for example, being custodians for valuable assets. Banks stand to provide a valuable service when it comes to custody, just in the same way banks custody cash, gold, art, and other assets –– why not Bitcoin and other crypto assets?

What this means for our entangled future

For many years, banks have chosen not to support the crypto markets, but given how the market has grown and matured since 2017, banks are seeing the potential role they can play as custodians for a new class of crypto investors.

As this market matures and more and more of their customers recognize the potential, more and more banks will care about grabbing hold of this opportunity to grow.
Let’s make sure we are ready to lead them in the right direction.

By Chris Aruliah, Head of Business Development at Bitstamp