Banks are future access points for the crypto market, executives say

Banks have come around to crypto over the past year, Fidelity Digital Asset Management chief Chris Tyrer said, adding that the institutions are “the future access points” for the market.

Tyrer and other executives noted, during a Tuesday panel at Blockworks’ Digital Asset Summit in London, that despite a growing demand for crypto among institutional clients, more regulatory clarity is needed before most banks jump fully into the segment.

Conversations have shifted in the past 12 months from blockchain and distributed ledger technologies to the metaverse, Web3 and creator economies, Tyrer said.

“People have sort of realized what this technology enables, where it’s going and what the future state is, and are much clearer about the direction of travel to get there,” he added. “I think that, in and of itself, has kind of cemented the investment thesis … and there’s also been a surge of demand through the banks from their traditional customer bases.”

TradFi and Crypto Merger

BNY Mellon revealed last week that some of its institutional clients would be able to hold and transfer bitcoin and ether on its new crypto custody platform, which is available in the US. More recently, Mastercard on Monday unveiled an upcoming program that will help banks and financial technology companies gain access to buy, hold and sell certain crypto assets.

About two-thirds of respondents to Mastercard’s 2022 New Payments Index – published in June – reported that their current financial institution preferred to offer crypto-related services.

Alexey Demyanov, CEO of Bank of America, said during the panel that people often want to foster their relationship with a bank they trust rather than move their business elsewhere.

“As much as the whole idea is to remove trust in a central party or trust in an intermediary, adding a next relationship … with the same institution is efficient, practical and safe,” he said.

Panelists noted that the worlds of traditional finance and disruptive blockchain technology are set to inevitably meet and become intertwined over time.

After the collapse of Three Arrows Capital and others earlier this year, Previn Singh, head of Credit Suisse’s Distributed Ledger Technology Center of Competency, said capital liquidity buffers, for example, may have come in handy for some of these players.

“I think there’s this somewhat cartoonish picture in terms of competition where it’s TradFi versus DeFi and never the twain shall meet,” Singh said. “I’m really starting to think that will never be the case — it’s the best of both worlds that you can use.”

Regulation will be key

Leaders on the panel noted that while venture capital-backed financial technology companies, for example, may be able to take more risks by moving into a largely unregulated area, the bar for banks and large asset managers is much higher.

Last week, European legislators voted in favor of the Markets in Crypto Assets (MiCA) bill which will introduce provisions on supervision, consumer protection and environmental protection for crypto-assets. The laws will enter into force in 2024.

Meanwhile, the US is still working on how best to regulate the space. President Biden signed an order in March requiring government agencies to weigh the risks and potential of digital assets. The White House published a crypto framework last month that calls for further study around issues such as central bank digital currencies (CBDCs), DeFi and NFTs.

“Until there’s regulation, I think a lot of the big banks probably won’t touch it, but there are other areas around this area that we can definitely look at and are looking at,” Rita Martins, head of fintech partnerships at HSBC, said during the panel.

London-based financial services titan HSBC bought virtual real estate in The Sandbox earlier this year as part of a larger partnership with metaverse to engage with sports, esports and gaming fans.

“It’s almost like we moved from the technology side to more around the experiments and what are the new experiments that we could provide to customers within this area,” Martins said.

Moves by BNY Mellon, Mastercard bullish for space

Although regulation still needs to be sorted out, BNY Mellon and Mastercard’s latest announcements signal that major institutions are preparing to dive deeper into the crypto space.

Serhii Zhdanov, CEO of crypto exchange EXMO, called Mastercard’s upcoming program a “logical move,” adding that the payments giant understands that crypto can outgrow its existing industry.

“As both Mastercard and Visa have been working with crypto for years now, their processes are already in place and have been adequately tested,” Zhdanov told Blockworks in an email. “For the banks, it’s a no-brainer if Mastercard says, ‘We’re taking compliance issues.’ I expect that crypto will soon become part of every bank’s product line.”

Crypto was until recently seen as “antagonistic” to the traditional banking and payments industry, according to Hugo Feiler, CEO of blockchain protocol Minima.

“Now integrating them with common payment mechanisms will make it easier for those who have crypto to use it and break down the barriers between the crypto and TradFi systems,” he said.

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