Banks launching crypto trading services in 2024
What are crypto-friendly banks?
Financial institutions that laid down policies and methods to support crypto transactions and associated activities are considered as crypto-friendly banks. Such banks enable customers to buy, sell, and store cryptocurrency, facilitate transactions with crypto exchanges, and provide other crypto services. Typically, these banks cooperate with crypto companies as well.
Until recently, traditional banks have not been crypto-friendly; some of them even restricted any crypto-related transactions and other services. On the other hand, crypto-friendly banking serves as a forward-thinking approach to financial services designed to adopt the evolving crypto ecosystem.
Banks that became crypto-friendly present a gateway for crypto transactions, along with providing a novel range of services tailored to the needs of crypto investors and businesses.
Crypto banks vs. crypto-friendly banks
The terms crypto banking and crypto-friendly banking are often used as synonyms, yet they are not the same. Crypto banking refers to a range of services primarily dedicated to digital assets. Such banks provide only crypto-specific services such as trading platforms, loans, and crypto wallets. Therefore, their focus is solely on the crypto space.
On the other hand, crypto-friendly banks refer to traditional types of financial institutions that decided to integrate digital financial services as well. They assumed the role of a bridge between traditional finance and the crypto landscape, providing a comprehensive range of services beyond just traditional or crypto transactions. Therefore, they manage both traditional and crypto services within the same financial sector.
The impact of cryptocurrency on traditional banking services
In 2024, we are entering a new era - one that aims to provide utility, regulatory clarity, and crypto adoption by traditional financial institutions.
Cryptocurrency has the potential to majorly influence traditional banking practices. Due to the use of blockchain technology, they can become faster, more secure, and more efficient. However, as opposed to traditional financial institutions, the crypto world is based on decentralisation which eliminates the need for intermediaries and makes transactions cheaper.
To learn more about the significance of decentralisation, we suggest reading this article: 'What is decentralisation & why is it important?'.
Crypto transactions have faster cycles compared to traditional payment systems. Due to these speed-sensitive transactions, users can send and receive payments swiftly, without the need to wait for transaction confirmations. This is especially useful when it comes to international transactions.
Additionally, by allowing users to observe transactions in real time, the use of blockchain technology enhances transparency, security, and user confidence. Novel investment opportunities have the potential to stimulate economic growth and transform the whole system into a more efficient one.
Are there any drawbacks?
Although the crypto industry brings to the table many advantages, it is plagued with specific drawbacks as well. One major downside of the crypto market is its volatility – many digital currencies struggle with maintaining a stable store of value. Prices can change fast, and sometimes it can be hard for investors to predict their returns accurately.
While crypto is about transparency, security, and customer centricity, many crypto users have fallen prey to online scammers. Due to their decentralised nature and lack of regulation, users had problems dealing with fraudulent activities.
Why did banks decide to provide crypto services?
As we embrace the new era of financial innovation and digital finance, many banks decided to become crypto-friendly and provide new financial services related to digital assets, crypto trading, and custody services.
The traditional banking system held power for centuries. For a long time, banks helped governments control the flow of money in local economies by taking deposits and lending money to other customers.
Now the banking sector is racing to catch up. Traditional banks want to compete in this new world of digital finance and gain profits accordingly. Some industry players predict that 2024 will be a year of institutional adoption, primarily through the Bitcoin ETF.
You can read more about Bitcoin ETFs in this article: 'Bitcoin spot ETFs are here. How do I buy Bitcoin ETFs?'.
Retail clients and institutional investors have been expressing an increased interest in the crypto space and the underlying distributed ledger technology. Banks couldn’t afford to ignore this opportunity anymore. Aside from digital currencies and cryptocurrencies, we are likely to see more use cases for blockchain around the development of smart contracts, establishing trust, and authenticating transactions.
Riding the MiCa wave
The recently approved EU’s Markets in Crypto-Assets (MiCA) regulation presents a new era of crypto-asset services across the European Union. While MiCA is coming live in the next 12 months, European banks will have to define new strategies, and providers of crypto asset services will have to apply for a licence and be subject to a particular review.
However, it might be a bit easier for banks to take this road. Many of these prescribed requirements, other than obtaining the necessary licence, are likely to already be covered by their existing compliance and risk management practices. Apart from being staffed with trained personnel, the regime will be similar to the one that banks are already used to.
Some industry experts believe that, in the long run, this could force non-bank crypto service providers to merge with banks, as the cost of compliance might be expensive.
With MiCA, banks have two choices – either they get on-board and adapt to the crypto market and new requirements or they do not, and concentrate on traditional banking services.
New banking projects in 2024
It became evident that a major adoption of crypto services by institutions is an inevitable reality, driven by the pursuit of market dominance. This is not a sudden change of heart, but rather a strategic move to give customers more options while simultaneously expanding their influence.
Major banks such as JP Morgan Chase and Goldman Sachs are building dedicated teams for cryptocurrencies and blockchain technologies.
To provide a comprehensive suite of services for their consumers, many banks partnered up with crypto and fintech companies to explore innovative ways to incorporate digital assets into their services and provide crypto financial services on a global scale.
Swiss banks launching trading and custody services for Bitcoin
In November 2023, the Swiss-based St. Galler Kantonalbank announced the launch of crypto trading and custody services for Bitcoin and Ether to a particular group of clients. The bank further announced its aim to expand the digital assets’ offerings by adding more cryptocurrencies.
The St. Galler Kantonalbank is launching crypto services in partnership with SEBA Bank. SEBA Bank holds a licence from Switzerland’s regulator of financial markets and provides digital asset services for other banking and financial institutions.
Following an implementation project, these banks signed a contract in 2023. The partnership with SEBA Bank will help the clients integrate cryptocurrencies into their current investment portfolios.
Raiffeisen bank rolling out cryptocurrency trading services for retail customers
Austria’s Raiffeisen Bank gained a lot of attention when deciding to roll out cryptocurrency trading services by the end of January 2024. Crypto-related services will be initially provided to customers in Vienna, the bank’s headquarters.
The bank in question has approximately 17.8 million customers across the Member States of the European Union and Eastern Europe; therefore, this move has been another sign of widespread crypto adoption in parts of the world where crypto regulations are emerging.
Raiffeisen Bank partnered up with the crypto exchange Bitpanda, which signed a letter of intent with the bank back in 2023. Bitpanda, a Vienna-based crypto exchange, is under the supervision of the Austrian and German financial regulators; it enables companies to provide regulated services such as trading, investment, and custody for cryptocurrencies, stocks, commodities and precious metals.
As stated by the Raiffeisen bank’s head of innovation, customers will be enabled to use their mobile device to enter Bitpanda through the bank’s application. Confirming a trade will mirror an account-to-account bank transfer, providing the same sort of security customers have been practising.
Bitpanda, which was founded in Vienna in 2014, is under the supervision of the FMA in Austria and BaFin in Germany, and enables firms to offer regulated trading, investment, and custody services for stocks, cryptocurrencies, precious metals, and commodities.
The Brazilian Itau Unibanco's crypto announcement
In December 2023, the Brazilian Itau Unibanco launched a cryptocurrency trading service for clients on its investment platform. The bank’s novel service will enable the trading of Bitcoin and Ether, but the nation’s largest lender plans to add other digital assets in the future.
As stated by the bank, crypto expansion will depend on the development of crypto regulation. However, Itau Unibanco is not the only Brazilian player on the crypto market – the crypto exchange MB and investment bank BTG Pactual are already on the path of crypto adoption.
However, Itau Unibanco claims it will stand out from its market competitors as it also provides crypto custody services.
German banks and crypto custody services for institutional investors
Back in November 2023, Germany’s fourth-largest bank Commerzbank announced that it has become the first bank in the country to secure the Crypto Custody Licence under the German Banking Act. As claimed by the bank, it encompasses around 26.000 corporate client groups and approximately 11 million private and small-business customers in Germany.
Commerzbank further announced that it plans to design a wide range of digital asset services with a specific focus on crypto assets. The bank aims to lay down a blockchain-based platform that is compliant with existing regulations to provide institutional clients with access to custody for crypto assets.
Another bank announced the launch of a digital assets custody platform back in November 2023. DZ Bank, the third-largest bank in Germany, partnered with the Swiss company Metaco to manage its crypto services using Metaco’s platform named Harmonize.
The development of the digital custody platform began in 2022; initially, it will take crypto securities into custody such as a crypto bond from Siemens. This venture means that the DZ Bank is one of the first credit institutions to launch an offer for institutional customers based on blockchain technology.
What are Central Bank Digital Currencies (CBDC)?
Central Bank Digital Currencies (CBDCs) refer to a digital form of government-issued currency that isn’t pegged to a physical commodity. They are issued by central banks, whose main goal is to support financial services for the government and its banking system, issue currency and set out a monetary policy.
CBDCs share some similarities with cryptocurrencies, but they are not the same. The term refers to a digital representation of fiat money with a value fixed by the country’s central bank.
Many countries are already developing CBDCs and considering how to implement them.
What are the different types of CBDCs?
Currently, there is no universal type of CBDC as various approaches are being piloted in different countries. One type is an account-based model – for example, DCash, developed in the Eastern Caribbean, enables consumers to hold deposit accounts with the central bank.
On the other hand, China’s e-CNY relies on private-sector banks to distribute digital accounts for their users.
A divergent model is currently under consideration by the European Central Banks in which licensed financial institutions operate a node of the blockchain network as a channel for the distribution of the digital euro currency.
The difference between CBDCs and cryptocurrencies
While CBDCs are controlled by the central bank issuing them and present a direct liability of its issuer, cryptocurrencies are decentralised and issued by the private sector. Although some crypto assets may be backed by other assets, such as fiat currency, they don’t present the liability of any central authority.
Secondly, CBDCs typically use a permissioned blockchain network while cryptocurrencies utilise a permissionless one. The issuing authority such as a central bank will be able to decide rules for CBDCs while crypto networks are controlled by users by making consensus decisions.
Is CBDC a threat to crypto?
As mentioned above, CBDCs and cryptocurrencies don’t have many things in common. CBDCs provide a more regulated approach to digital currencies, but they are also highly centralised. They may become more acceptable to the general public as a result of familiarity with the traditional system.
CBDCs could pose a threat to cryptocurrencies as their rise may result in stricter regulatory changes for crypto assets, along with causing a shift in the crypto market.
On the other hand, the rise of CBDCs demonstrates the growing importance of digital currencies. Even though they bring to the table certain advantages, they have particular drawbacks in comparison to crypto assets.
Is this a good thing for crypto space?
Instead of defining it as a good or bad thing, we can say that it is a logical course of development for both banks and the cryptocurrency space. To keep up with digital innovations, banks need to embrace it.
By cooperating with crypto companies, traditional financial institutions found a new way to leverage main advantages of blockchains and enhance their services, customer experiences and business models.
Aside from the centralisation threat, banks adopting crypto is a good thing for the crypto community as well. The crypto world needs to expand its user base; to create a new financial system, it needs to stay on the path of mainstream adoption.
The crypto industry has made significant efforts in implementing regulatory frameworks. By adopting crypto assets on a bigger scale, traditional banks can ensure compliance while utilising transparency, traceability and security provided by blockchain technology.