Breaking Barriers: Banks Embrace Cryptocurrency and DeFi in 2023
During the height of the 2021 cryptocurrency bubble, the banks displayed a jubilant mode with extreme predictions for Bitcoin, Ethereum, and other cryptocurrencies.
Banks have finally laid the foundations for crypto trading desks, and some experimented with DeFi or even NFTs (Mastercard owns one Ape).
Funds controlling trillions of dollars (like Guggenheim, Vanguard, Blackrock, and more) announced their interest and investments or research in cryptocurrency and crypto-related businesses, and some institutions also invested heavily in mining companies.
Crypto analysts overconfidently announced a super-cycle for Bitcoin and the cryptocurrency market. Yet, the volatility of the crypto market prevailed again, and in 2022, a cascade of liquidations and bankruptcies turned the sentiment negative.
With the recent collapse of Silicon Valley Bank and Silvergate (two non-systemic banks that reportedly pose no threat of contagion), we examine the current stance of the “Big Four” banks in the US and how they are planning their next move while the young crypto industry flies under the radar.
The latest victims of the chain reaction were two crypto-friendly banks: Silvergate and Silicon Valley Bank.
Bearish traders fueled the fire that burned Silvergate stock and its investors while earning themselves a big payday.
As crypto capitulated, we thought banks would be instantly dismissive of cryptocurrencies again, but we witnessed instead a more cautious and mature approach this time.
Leaving aside Jamie Dimon’s remarks, who considers Bitcoin a “Pet Rock” Ponzi, we discover how JP Morgan is quite active in the field even when crypto is once again the laughingstock of the financial world.
Some of JP Morgan’s crypto-related activities include:
Onyx: A blockchain-based DeFi institutional financial platform using DeFi protocols while also planning for tokenization and trade of real-world assets. Onyx claims to support decentralized finance (DeFi), but the product it delivers is permissioned (GitHub link).
The bank has a strong relationship with top cryptocurrency exchanges (Coinbase, Gemini). Recently, a rumor emerged regarding Gemini, which the exchange debunked on Twitter.
In 2021 JPMorgan launched a new fund linked to Grayscale’s GBTC (Bitcoin), BCHG (Bitcoin Cash), Ethereum (ETHE), and Ethereum Classic (ETC), (Business Insider)
JP Morgan analysts acknowledge Coinbase as a top entity in the crypto industry and the USDC stablecoin as a regulated stablecoin (source: Coindesk)
Blockchain Analytics firm Elliptic received funding from JP Morgan in May 2022 (source: The Block)
The bank is constantly following the institutional sentiment on cryptocurrency and presented its positive findings for 2023 (source: DailyHodl)
Bank officials are often explaining the significance of Bitcoin and cryptocurrency (source: beincrypto)
JPM has announced a proprietary cryptocurrency (JPM), and a private blockchain (Quorum)
JPMorgan’s association with cryptocurrency is controversial.
On one side, it supports several entities of the crypto industry, yet the bank will often lambast decentralized cryptocurrencies through the speeches of its CEO Jamie Dimon.
While this is still a love-hate relationship, the bank is constantly monitoring cryptocurrency since 2017 and discovered value recently in DeFi.
Prices of cryptocurrencies dropped significantly after the FTX collapse, an exchange connected with JP Morgan, although we do not know the full extent of the bank’s exposure in FTX. JP Morgan has since then reduced its support to the crypto industry and waits for new regulations from a new crypto bill that contains restrictive policies, though (more on Cointelegraph).
The FTX collapse affected Wells Fargo, although the total exposure of the bank was not released to the public yet (Bloomberg).
Wells Fargo made steps to compete with other banks in the cryptocurrency trading space, and funded several businesses operating in the sector:
Just like JP Morgan, Wells Fargo also funded Elliptic for $5 million in 2020 (source: CNBC)
In partnership with JP Morgan, Wells Fargo registered with the SEC a Bitcoin Trust in 2021.
The FTX collapse hit banks besides the cryptocurrency prices, and Wells Fargo was no exception. After the FTX bankruptcy, Wells Fargo reduced its interest in crypto-related activities, yet, we should expect it to be a frontrunner in the future, in terms of institutional investing in crypto.
BoA embraces innovation and looks further into new concepts that will dominate in the coming years.
Increasing adoption and usage result in increasing revenues and native token appreciation if properly designed, both of which can be reinvested in development.
(BoA, Source: Coindesk)
The bank is constantly researching the industry and can become the driving force of institutional investing.
Bank of America is seriously looking into DeFi since the inception of the technology but also constantly researching the cryptocurrency for new developments such as soulbound tokens, digital identity, and NFTs (source: Coindesk)
BoA is creating its private blockchain infrastructure acknowledging and cloning technology from cryptocurrencies (source: Finbold)
BoA chief investment strategist Michael Hartnett recently expressed the view that cryptocurrency can thrive even during a recession as funds will begin moving out from stocks.
The bank plans a partnership with Ripple once the SEC lawsuit settles (source: DailyHodl)
Four months ago, BoA listed a job offering on LinkedIn while looking for a Public Policy expert to track regulatory changes regarding cryptocurrency (link)
Two BoA execs mentioned Bitcoin in a recent report stating its correlation to gold as a safe-haven asset (link)
During 2021, with cryptocurrency at its peak, the bank kept encouraging the cryptocurrency field with positive reports regarding Metaverse developments (read more: Business Insider) and various cryptocurrencies like Solana and Avalanche (source).
Despite the positives, the bank still treats crypto with a cautious stance. BoA’s CEO, Brian T. Moynihan, expressed concerns about the inability of the bank to enter the space as much as they would have wanted as regulations prevent it.
Different forms of cryptocurrency are expected to dominate, but given the multi-chain trend in the crypto ecosystem, cryptocurrency will likely coexist with fiat currencies, central bank digital currencies (CBDCs), and stablecoins.
Citigroup (March 2022 Report)
Citi is a global bank handling approximately $25 trillion worth of assets. The group is exploring the cryptocurrency space in all its aspects.
Citi maintains a favorable stance and can be considered a decisive force in the future institutional adoption of cryptocurrency and bank integration of various crypto-related technologies.
The bank is developing institutional custodian services for digital assets (more on Business Wire).
Funded the institutional trading desk Talos (more on Cointelegraph).
It presents an optimistic view of the Metaverse and foresees a $13 Trillion market by 2030 with 5 Billion users, together with a rise in cryptocurrency adoption within the Metaverse (Citi report).
Citi Ventures funded “xalts” an institutional-grade asset manager startup in Hong Kong (source: Bloomberg).
Citi also funded TRM Labs in 2022, a blockchain intelligence platform that provides analytics and threat investigation for cryptocurrency exchanges and government agencies (source Forkast News).
At the height of the previous adoption cycle, the bank added 100 new employees for its digital assets division (source).
The bank led the funding round for Amberdata, a digital assets company promoting research and development in DeFi and offering data and insight (source).
Citibank often publishes reports on cryptocurrencies like Ethereum, Chainlink, and Solana.
Citibank announced the creation of a crypto desk in 2017 and pursued it again in 2021 but stalled these plans both times. While Citi is constantly exploring the space, it also applies caution and limits funding to startup firms that pursue institutional offerings in custodian form.
The big-4 US banks, after the FTX incident, began pushing for strict regulations in crypto.
However, such regulations will hinder progress and innovation in the field and shrink its potential.
Nonetheless, the banking sector does not seem keen to support real decentralized cryptocurrencies or applications. They can’t either since KYC/AML regulations would forbid it.
The best approach would be to examine the growing banking interest in cryptocurrency under the scope of institutional investing in digital assets, with a secondary use case to facilitate remittances.
Retail adoption occurs within crypto exchanges. Yet, even this type of adoption for several years is not focused on the actual use of cryptocurrency but speculation instead.
Ten years from now, the internet will not be the same. The digital revolution is ongoing.
Virtual assets and digitization of real-world assets will demand decentralized networks, control of digital assets, control of access, and handling of private keys.
In 2017, the scalability issues of Bitcoin (high fees, clogged network) proved that $BTC was unable to meet demands as a method of payment. Multiple payment cryptocurrencies emerged to cover this gap. Bitcoin Cash, XRP, Dash, and Dogecoin, present solutions proposing a better alternative than Bitcoin ($BTC) for payments.
Developers on the Ethereum blockchain produced several financial and digital innovations like DeFi, NFTs, marking the significance of decentralized networks for the future of the digital / virtual economy.
Institutions such as banks predict and plan for the distant future. Their survival and expansion depends on looking into the next 20–30 years and envisioning how technology will reshape our economies.
The “boom and bust” cycles of cryptocurrency point to sufficient potential for cryptocurrency to become an ordinary method of transacting. A method in parallel to the fiat currencies and perhaps CBDCs.
We also witness the cryptocurrency sector constantly advancing and delivering new and significant financial products such as DeFi, NFTs, tokenization of real-world asset.
Banks already integrate concepts like DeFi and understand how Web3 and Metaverse technologies will require multiple solutions that centralized entities can’t serve.
To conclude, decentralization matters, and banks understand there will be demand for custodian services to control the rights of digital property, control digital assets and cryptocurrencies but mostly for institutions.
An institution will prefer to outsource the handling of keys and rights to a professional service and ensure/guarantee the security of such assets.
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