When digital money was initially launched, every banking institution was reluctant to embrace the innovation, believing that it would not be wise to invest in it. However, as cryptocurrency made waves in the industry, some banks had a change-of-heart and started to consider supporting what they fear back then. The advent of digital money is indeed a significant milestone in computer science. For the longest time, computer scientists and cryptographers have reached for a digital currency or the so-called digital gold. Are banks investing in cryptocurrency? Keep reading to find out.
Do Banks Consider Cryptocurrency Investment?
During its pilot launching, blockchain is initially created for digital ledger transactions, which is practically a different database system maintained across several computer networks. The same reason why banks are gradually taking some of the principles behind blockchain while adapting the technology for other use cases to crypto at the same time.
Indeed, several big names in the industry and venture capital funds are beginning to sustain a profitable commitment to cryptocurrency, regarding it as the future of money and financial transactions. That being said, banks can no longer afford to ignore this opportunity; hence, the start of accepting cryptocurrency investments.
Retail-banking clients and institutional investors now express their interest in this financial vehicle and the distributed-ledger technology that lies beneath it, particularly blockchain novelties.
Are banks investing in cryptocurrency? With the advent of technology and with the current trend on trade and finance, cryptocurrency payment systems operated by banks have already used digital currencies successfully. But note that transactions differ in many ways. There are exclusive and stable coins that many have lowered their value. With banks concerned about fluctuations, they see to it that cryptocurrencies have a good background and that they always consider a prominence factor before transacting. When digital coins are stable, it will open more opportunities to use cryptocurrencies in daily payments and make it an efficient digital form of cash.
Cryptocurrency And Banking
Given the various reports about digital money, banks have seen their growth, and bankers need to take stock of the field’s actual trends. Despite being a speculative investment, the continuing momentum in cryptocurrency is a clear indicator of the pace of acquisitions by institutional investors, venture capital firms, and private equity funds. In the year 2020, reports show that invested capital per deal has dramatically increased from about $5 million in 2015 to almost $20 million during the first six months of 2020. The figures are deemed to be greater than those investments per deal in the first half of 2019.
Perhaps, the time has run out for banks to avoid being disrupted by cryptocurrency-oriented competitors, as up and coming challengers from the technology industry are now making their move aggressively. Nevertheless, crypto experts believe that large and regional banks can still enter the digital space, obtain a first-mover advantage, and win the wide margins that come with any differentiated and gainful offering. Banks are often well trusted, which, in turn, could give them the upper hand.
When investing in this highly volatile sector, banks need to protect themselves and their customers against such technology risks. In the year 2019, it was reported that crypto-related assets do not reliably guarantee the standard functions of money and are unsafe to depend on as a medium of exchange or store of value. Therefore, risk mitigation is a crucial factor for banks to succeed when venturing into cryptocurrency investments.
Since cryptocurrencies and related blockchain technologies are regulated by a wide variety of government organizations worldwide, each has introduced its laws and guidelines. As a new set of policy framework emerges, banking institutions need to have structured regulatory compliance because inconsistencies in regulatory implementation are among the most significant challenges to the growth of cryptocurrencies.
Most people who are new to the crypto world would ask, are banks investing in cryptocurrency? As digital currency often creates a space for fraudulent activities or cyber intrusion, banks have an increasing need for custodian services like the storage, maintenance, and protection of cryptocurrency assets. And considering that the crypto market can be profitable for suppliers that offer value-added services, banks are ideal for providing this solution. It could either be a digital equivalent to the old-fashioned safe-deposit box or taking advantage of the existing prominent cyber protection that is already being used to keep financial records.
What Do Banks Get With Cryptocurrency Investments?
As various banking institutions are placing their bets and starting to take BTC seriously, it’s safe to say that they also aspire to have a stake in its growth. That said, blockchain, technological ledger, and digital money will be a big part of these banking organizations. Are banks investing in cryptocurrency? Why so? When banks join the crypto world, it will give them insight into how the industry is developing and provide them the access to other up and coming technologies that are to be developed. Consequently, it would be a good move for banks to incorporate some of these new technologies into their business model. Instead of resisting, embracing these innovations would greatly help them in the long run.
Reliable crypto experts have stated that another factor that has led banks to embrace the emerging digital currency and technologies might have something to do with the worldwide pandemic. Are banks investing in cryptocurrency? Yes, indeed, but not all bank does. Those financial institutions that took the risk believed that being forced to adopt the digital transformation as the primary mode of work will help them focus on digital payment rails. Learn more about cryptocurrency here!