Cryptocurrencies may have become commonplace in investment-related discussions, but the digital currencies have been struggling to gain acceptance from central banks and financial regulators in many countries.
In India, for instance, the use of cryptos has been stiffly opposed by the Reserve Bank. In fact, in 2018, the RBI disallowed banks from dealing with crypto exchanges. This meant that crypto investors faced hurdles in funding their crypto wallets via bank accounts or transferring crypto-related funds to their bank accounts. The ban was set aside in 2020 by the Supreme Court.
However, recent global developments in the banking industry suggest the tide may be turning. The crypto market has exploded with both the number of users and cryptos growing exponentially. Over 22 crore people used cryptocurrencies globally, per a July report by Crypto.com. As these digital assets rapidly gain popularity, some banks that earlier warned customers against investing in cryptos are now looking for ways to help educate them and even provide crypto-related services.
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Jamie Dimon, head of the largest US bank JP Morgan Chase, has been among the most vocal critic of bitcoin, even calling it ‘worthless’ in October last year. This was despite reports suggesting the bank had, just months before, started giving its wealth management clients access to six crypto funds. Earlier in May, when his bank was in negotiations with crypto firms to offer such funds, Dimon had said he still didn’t support bitcoin. But he conceded that “clients are interested, and I don’t tell clients what to do,” per a CNBC report.
The growing demand from clients is one of the major reasons why banks are now reluctantly offering crypto-related services. According to a report by American Banker released on January 20, customers of about 300 community banks in the US will soon let customers buy and sell bitcoin via their internet banking mobile apps. Bankers who are part of the initiative hope that offering crypto services will help them benefits from the digital assets’ popularity.
Brad Scrivner, CEO of Vast Bank, a part of the group rolling out this service, believes the crypto banking launch is already a success. Scrivner said the bank has seen nearly five times its “historical retail customer base” in the past few months.
The race to join the crypto bandwagon has also led to some interesting deals in the crypto-banking space. On January 19, a 286-year-old German bank, Bankhaus von der Heydt, was bought by BXM Operations AG, founded by crypto exchange BitMEX’s CEO Alexander Höptner and CFO Stephan Lutz. The deal, according to BitMEX, will allow the two corporations to build a ‘regulated crypto powerhouse’ that offers a diverse range of regulated crypto products in Switzerland, Germany, and Austria, per reports.
BitMEX, a P2P exchange headquartered in Seychelles, allows investors to access global financial markets using bitcoin. Earlier this year, BitMEX launched a brokerage service in Switzerland by hiring Ivo Sauter as their new CEO. Ivo will lead their expansion in the region and plans to capitalise on the potential of cryptocurrencies in Switzerland.
While both parties have signed the purchase agreement, it is yet to be approved by BaFin, the German banking and financial services regulator. According to reports, the regulator’s approval is expected to come by mid-March.
A similar deal had been sealed in November last year. Only in that deal, a bank had bought majority stake in a crypto exchange. Thailand’s Siam Commercial Bank (SCB), backed by investments from king Maha Vajiralongkorn, had acquired a 51 percent stake in the country’s biggest crypto exchange Bitkub for 17.85 billion Thai baht (roughly Rs 4,000 crore at the time).
Announcing the acquisition, SCB CEO Arthit Nanthawittaya had said the Bitkub buy will help the bank "create new value that can grow in the long term" and that the Group wants to get into the cryptocurrency vertical in order to "meet the new needs of consumers" and enter "a new competitive field that is coming up very quickly in the next 3-5 years”.
Such deals hint at how rapidly the worlds of banking and cryptos are merging and bankers who had been busy bashing cryptos are also now playing catch-up. According to a report by the New York Times, Bank of America’s chief operating officer Thomas Montag, who ridiculed bitcoin for years, is now taking tutorials on cryptocurrencies. Montag reportedly spent hours listening to lectures, reading books and meeting executives from cryptocurrency businesses.
In fact, research by analytics company Blockdata published in August pointed out that 13 of the world's largest banks have invested roughly $3 billion so far into cryptocurrency and blockchain companies.
Nearly 55 percent of the world's 100 biggest banks by assets under management are now invested directly or indirectly in companies and projects related to digital currencies and blockchain, the report stated.
As Thomas Olsen, a partner at Bain & Company who advises financial firms on cryptocurrencies and other digital asset matters, pointed out to the New York Times, “Most people agree that in the future -- it might be 10 or 20 or years or it might be sooner — effectively all assets are going to be in a digital format.”
