One of the biggest losers in this crypto winter has been trust: trust in people, trust in systems, trust in companies and even trust in technology. The collapse of Terra and then Celsius Network has uncovered a willful naivety on the part of many market participants. For many people it has been a shock from which it will take a long time to recover. To get out of this slump, crypto needs to get serious.
Away from the headlines of collapsing platforms and imploding coins, crypto is changing for the better. The recent moves into crypto by global financial institutions such as BlackRock, Charles Schwab and abrdn are encouraging signs. It’s now time for global banks to make their presence felt.
Banks have enduring consumer trust and experience in influencing consumer protection regulation with governments. This puts them in a good position to take a larger role in the crypto markets, bringing stricter governance and controls while leveraging the speed and access that digital assets and DLT provide.
Moreover, despite the recent falls in prices, the underlying conditions are actually becoming more, not less, attractive for the banks. Security is improving at the same time as a coherent regulatory environment is emerging. With asset-backed stablecoins improving stability, crypto is moving to a new stage of evolution.
There are now regulated counterparties and service providers that banks can feel comfortable conducting business with. For example, the payments bank Banking Circle can manage the technical, operational and regulatory issues on behalf of its clients, helping to deliver a seamless, end-to-end experience for underlying customers looking to use stablecoins.
We believe that this next stage of crypto market development will be determined by the role that banks decide to play. However, to many people this might seem counterintuitive. After all, cryptocurrencies and decentralized finance (DeFi) were specifically designed to allow payments without banks. Bitcoin itself was invented after the financial crisis of 2007-2008, specifically to disintermediate the tarnished financial system.
But we would argue that the absence of banks from crypto has prevented it from going mainstream. The regulations and systems that crypto sought to swerve – to make payments faster, cheaper and more convenient – are what give customers the protection and stability that engenders trust. Without trust, the customer base and potential growth are limited.
Banks are becoming the engines of trust in crypto. Their size, capitalization and regulatory oversight will be very attractive to crypto users who have been burned by losses or denied access to their funds. They know how the systems of money management work, including how to use collateral and how and when to put in lending constraints. This knowledge could be more important than their sheer size and commercialization, especially for the future avoidance of regular crypto crashes.
The first services that they are likely to offer will be international payments. This will be client-led, as both retail and wholesale customers seek the speed, 24-hour and low-cost advantages that crypto offers in the space. They’re also going to expand their custody services to include crypto assets and offer crypto trading services for their investment clients. Plus, they are likely to offer crypto as part of their wealth management offerings to high-net-worth individuals. Some may even set up their own stablecoins.
Behind the scenes, crypto is changing. Some will miss the anti-establishment ethos of its early years. But now is the time for banks to get on board as crypto emerges from this winter into a stronger, more resilient and more sustainable future. A future in which trust has been re-established and people are as likely to buy online with stablecoin as they are with U.S. dollars or euros.
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