Reports that traditional banks such as BNY Mellon and Deutsche Bank have become active in the cryptocurrency area, including through depository services, should be welcome news for cryptocurrency investors.
After all, lost or misplaced private keys are the curse of the cryptocurrency world – just think of a Welshman who lost 7,500 bitcoins (BTC) worth around $ 400 million today when he filled up his computer’s hard drive and forgot it was a stock. The only one for his private key. Meanwhile, traditional banks are primarily stewards of society, so perhaps they can improve the experience of cryptocurrency users in terms of private keys, at least.
But if large financial institutions are already meddling in cryptocurrencies – and not just in storage, as investment bank Morgan Stanley pointed out on February 13 for future investments in bitcoin – why now? Is it just an increase in bitcoin prices? Or has the groundbreaking blockchain / cryptocurrency industry taken to the next level, with even cautious depository institutions accepting it?
It looks like a combination of factors. In the summer of 2020, the office of the U.S. auditor issued a cover letter that allowed banks to protect their customers’ digital assets, “including keeping unique cryptographic keys associated with cryptocurrencies.” This led to “a significant increase in demand and direct inquiries from banks,” Pete Najarian, CFO of BitGo, cryptocurrency depository, told Cointelegraph.
Meanwhile, the recent boom in the cryptocurrency markets has attracted more traditional large investors who expect an institutional level of security for their digital assets. “There is a real demand from end users, and this is forcing the old infrastructure to participate in these markets,” Najaryan added.
Nigel Greene, founder and CEO of DeVere Group, an independent financial advisory organization, said the banks’ current interest is driven by three main factors. “The first is to meet the demand from institutional customers,” he told the Cointelegraph. Second, it is becoming increasingly clear that cryptocurrencies are the future of money; The third is the fear of being lost or abandoned. ”
Tobias Tenner, deputy director and head of digitization at the German Banking Association, told Cointelegraph that the bitcoin price increase has captured the interest of German banks, and the new regulations introduced in January 2020 that paved the way for banks to operate. Crypto Trustees. “Banks will (soon) be able to offer custody and trading services, and possibly consulting services,” he said.
Are the banks ready for this challenge?
But are traditional banks really ready to handle cryptocurrencies? Will they be able to cope with instability, hackers and advanced technology? “I think they [the banks] are learning and trying to find their role in this brave new world. “History shows, however, that the traditional banking sector is not entirely true,” Pablo Agnese, professor of economics and business regulation at UIC Barcelona, told Cointelegraph. Vulnerable to major technological breakthroughs. ”
Brian Rutledge, assistant professor of economics at Carnegie Mellon University, told the Cointelegraph that storing cryptocurrencies is not much different from what the old banks are doing now and have been doing for years. Having a public / private key pair is important, but “not that difficult” or should not be for most banks.
Older organizations will also face a threat to their reputation if they enter the cryptocurrency area, which can comfort new users who may be worried about diving into cryptocurrency. Can banks deal with this problem? Perrian Boring, founder and president of the Digital Chamber of Commerce, told the Cointelegraph: “Absolutely true”:
“As more and more companies and organizations add cryptocurrency to their balance sheets, the demand for highly reliable storage services increases. Large owners need reliable solutions for storing cryptocurrencies with multiple authentications, and traditional banks are well positioned to offer these solutions. ”
Are banks the “white card” for their services?
If so, can this happen at the expense of cryptocurrency-focused companies like BitGo or cryptocurrency exchange platforms like Gemini that also offer storage services? “We believe there is room for both traditional financial services firms and local crypto firms,” said BitGos Najaryan, who sees new opportunities to partner with traditional banks.