Bitcoin as an inflation hedge? Like digital gold? With the fall in prices, many hopes for Bitcoin and other cryptocurrencies have been shattered. But experts see the new “crypto winter” as part of the industry’s maturation process.
“Crypto as an asset class is here to stay,” said Tracey McDermott, Chief Compliance Officer at UK bank Standard Chartered. There has been a rethink in many banks. Because the blockchain technology behind cyber currencies offers opportunities that go far beyond speculation and can turn the financial industry upside down. The institutes therefore push their own offerings behind the scenes – and explore acquisitions.
From the peak in November last year, the value of all cryptocurrencies has fallen by two-thirds to below $ 1 trillion. Skeptics see themselves confirmed. For many cryptocurrencies, it is not even possible to determine an appropriate value, UBS CEO Ralph Hamers said recently. “It’s almost like going to a casino.” Customers can therefore not trade cryptocurrencies directly with UBS and most other major banks.
Therefore, investors are switching to specialized trading platforms such as Binance or fintechs. According to a study by the Boston Consulting Group, about 95 percent of all cryptocurrencies – most of them cryptocurrencies – bypass traditional asset managers. This means that they are giving up on a very lucrative business. And that could only be the beginning.
“If customers find that such a platform is bold and easy to use, there is a risk that they will also leave the housing bank for other services,” says Tobias Würgler from the consulting firm Oliver Wyman. Therefore, the American banks and also Swiss asset managers have started to get involved in the business. “Many banks are developing infrastructure that will enable them to manage digital assets at a technical and operational level,” said Alexandre Kech, blockchain expert at Citi.
In extreme cases, blockchain can deprive traditional banks of their business base. For technology creates not only the conditions for crypto trading, but for a whole range of transactions between two parties – without an intermediate central body such as a bank or an exchange. “This is a tectonic shift from the Internet, where information is exchanged, to the Internet, where the value is transferred,” explains Mathias Imbach, head of the Swiss crypto bank Sygnum.
UBS chief Hamers also assumes that blockchain applications will make transactions faster, more secure and cheaper. Digital assets and decentralized financing (DeFi) would transform the sector over the next decade, private bank Julius Baer CEO Philipp Rickenbacher said last month. “So today is the right time for us to invest in the long-term potential of digital asset technology.”
An example of DeFi is MakerDAO. This platform, in fact only computer code, offers users interest-bearing deposits in cryptocurrencies on the one hand and Lombard loans on the other, completely automatically and without employees. There are comparable offers with SushiSwap in the stock market sector and with Nexus Mutual in the insurance sector.
Switzerland and Singapore as pioneers
The problem with most of these platforms: They are not suitable for the masses because no regulator monitors them and ease of use is limited. Companies like Sygnum try to build a bridge between regulated, centralized institutions and unregulated, decentralized offerings. According to Imbach, interest from banks has increased massively since the spring of 2021. Ten institutions now use the Sygnum platform for trade and custody.
But not all banks should stop cooperating and buy instead. “Over the next three years, we will see increasing transactions,” says Philipp Cottier of blockchain investor L1 Digital. Several well-known US investment banks and also credit card companies looked around. Acquisitions are likely to play a more important role than in previous years, agrees Jupiter fund manager Guy de Blonay. With the tightening of monetary policy by many central banks, access to capital for unprofitable fintechs is likely to become more difficult and expensive.
At the same time, their ratings collapsed. This creates buying opportunities for US and European finance companies with excess capital. “Some of it could be used to acquire new technologies at a lower price to compete more effectively with disruptors,” de Blonay said.
The German stock market has already hit. In 2021, she bought a majority stake in Swiss Crypto Finance for a triple-digit million amount. Because Switzerland, unlike many other countries, has already adopted a blockchain law, the location is fertile ground for crypto companies, just like Singapore, explains Deloitte’s merger adviser Jean-Francois Lagasse. “Switzerland and Singapore will be the pioneers in this market.”
Trading is also likely to take place in the opposite direction. Various major crypto platforms are currently looking for smaller traditional banks to obtain a banking or brokerage license, Cottier says. “We have received several inquiries from blockchain companies from Asia, the United States or the United Kingdom who want to buy a Swiss bank.” One obstacle, however, is the Swiss financial market authority, which must give the green light for a transaction. But one thing is clear: in the medium term, the boundaries between traditional financial companies and crypto companies will be blurred.