Do banks have a FOMO regarding digital currency?
United States banks seem to be getting jittery about missing the “digital currency as tradeable assets” movement. Banks are seeing the digital currency market approach $2.5 Trillion in value and they are seriously thinking it’s time to join the party.
According to the Financial Times, “Internal trading desks and a broadening array of clients are pressuring senior management at large banks to launch services around cryptocurrencies. Deciding where the behemoths of traditional finance will fit into the cryptocurrency world is tricky.”
What are banks afraid of?
Banks seem to be afraid that getting into digital currency may be bad for their reputation. Banks also have some large challenges in their efforts to go digital: they can’t move fast; their technology is behind the times; digital regulations are not clear or have not yet been established.
FT continues, “Trading is equally dubious because right now banks can only buy and sell futures and other non-cash contracts, which makes it difficult to generate the sort of returns that trading companies native to crypto can. Lending is off-limits for now. And companies that have been active in digital asset markets are far from scared.”
Bank technology is part of the problem
“Banks are not really tech-forward companies. They just don’t have the digital infrastructure,” said Diogo Monica, co-founder of Anchorage Digital, a bank and digital currency technology provider.
“Digital currency involves cutting-edge technology — far from the sort of kit that the stalwarts of traditional finance are normally associated with. After years of consolidation and mergers, the technology that underlies banking giants is creaky, fragmented and often arcane,” FT says.
“Welcome to the token economy”
Several large U.S. banks have made announcements about their involvement or planned ventures into digital markets.
On October 11, we told our readers about Bank of America’s new report from its Global Research division. The B of A report said, “Welcome to the token economy…(W)e are bullish on the long-term prospects for the digital asset ecosystem as it enters the mainstream.
The Global Research report continues: “(W)e are beginning the long journey of…what we believe to be the next generation of technology — blockchain-based digital assets and applications. It’s difficult to overstate how transformative blockchain technology, digital assets, and the thousands of decentralized apps that have yet to be created could potentially be.”
“Crypto is expanding into…the traditional financial services market,” said David Kinitsky, chief executive of Kraken Bank. “Businesses [native to crypto] will win out over incumbents in this new medium, just as we’ve seen in other industries when the internet was introduced.”
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Disclaimer: This blog is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.