Crypto establishment in the banking sector: The die is cast

Some people are still unsure whether the banking world will really shift to token infrastructures and whether financial institutions will engage in cryptocurrency transactions. If you look closely, you will find that this question of “if” no longer arises.

JP Morgan is burying pseudo-blockchains

If you want to know where the journey in banking is going, look at the major financial institutions and asset management companies in the United States. These are, at least according to the impression, well ahead of the European institutes. JP Morgan in particular seems to be leading the way when it comes to technology integration, even though their CEO Jamie Dimon is a bitcoin critic.

So far, private blockchain solutions, outside of the crypto market, have been the playground of banks, so now it’s finally the “real” public blockchains. After private blockchain solutions like Corda from R3 or Quorum blockchain from JP Morgan never came to commercial use, people are now switching to Polygon, Aave and Co. JP Morgan, for example, has completed several crypto transactions on the mentioned protocols together with the Central Bank of Singapore.

German banks lag behind

Some German financial institutions, on the other hand, don’t seem to be learning from the mistakes made by JP Morgan with their quorum blockchain. Deka, the savings bank’s fund company, is building SWIAT. This is a DLT infrastructure still based on the old principle of a private blockchain.

This example shows why our banks lag behind internationally. Finally, it can be predicted that international transactions, be it remittances in US dollars, settlement of securities or lending of capital or cryptocurrencies, will take place via open DeFi infrastructures.

Currency account for everyone

An example of the adaptation of freely tradable cryptocurrencies in the banking sector is the stablecoin circle, which is supported by Goldman Sachs, among others. More and more institutional clients who want to do international business prefer to use stablecoin rather than a foreign currency account that spends days finding its way to distant clients through a correspondent banking system.

Regulatory caveats and lack of crypto mainstreaming aside, there is little reason why a bank should still offer traditional foreign currency accounts to its corporate clients with international business. Even for small investors from the crypto sector, it is now completely normal to have some kind of foreign currency account in the form of US dollar stablecoins. Banks that eschew this crypto integration in the long run are ultimately undoing themselves. No one will accept such slow, expensive and hardly programmable infrastructures in five years.

Pension scheme with Bitcoin

While some German credit institutions practice the criminalization of cryptocurrencies, in the United States it is now possible to integrate cryptocurrencies into state-supported pension schemes. Fidelity Investments, one of the five largest wealth management companies in the world, already offers six cryptocurrencies for the so-called 401k pension plans.

At the same time, Goldman Sachs is working with crypto service providers to build a new crypto terminal for information aggregation. After all, Wall Street also wants to ensure informational sovereignty for digital assets. It is these strategic approaches that are still sorely missed in this country.

Tech giants are forcing banks into crypto integration

Apple, Tesla, Visa, Mastercard, Samsung or Meta: they are all among the biggest and most powerful companies in the world and they all deal with cryptocurrencies or NFTs. The intriguing question is: will they keep their billions and in a few years trillions of US dollars in capital tied up in tokens with banks or with new crypto service providers? After all, Tesla’s bitcoins are not stored with a traditional financial institution, but with Coinbase.

Something certainly indicates that the big institutes will not take the butter off the bread in any case. Otherwise, there is a risk of a gigantic outflow of funds from old to new institutions. This explains, for example, why custody service providers like Fireblocks continue to grow strongly even in bear markets. Her clients include a BNY Mellon or BNP Paribas.

Not to be underestimated: brain drain

A so-called brain drain occurs not only when people leave a country, but also when they turn their backs on a particular industry. In particular, more and more young people, who previously would have chosen a career in the bank, decide to build the infrastructure of the future.

It is inevitable that committed and inquisitive employees ask themselves where they can continue to work in the future and how great opportunities await them. Even a bank board member can no longer belittle the fact that the future lies with Web3 infrastructures without making himself unbelievable. The inevitable crypto integration in the banks is not only due to the management, but is also a development that arises from the thinking of each individual employee.

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