Banks Aren’t Warming to Crypto and It’s Not Just Regulatory Uncertainty – It’s Fear
Barron’s looks at the crypto exposure for traditional banks, and it’s clear the banking and TradFi economy isn’t embracing cryptocurrency the way retail investors, VCs and tech startups have. And the sum total of the largest banks investment is worth less than $10 billion, or 0.01% of the total exposures that banks report for the purpose of determining capital requirements.
Of the 182 banks monitored by the Basel Committee on Banking Supervision, just over 10% have any exposure. In fact just two banks make up 40% of all investments in crypto.
Barron’s posits a number of reasons for why banks haven’t warmed to crypto, including uncertainty and a lack of clarity in regulations affecting crypto.
A report released Friday by the Basel Committee on Banking Supervision found that the largest banks’ crypto exposure was worth only about 9.4 billion euros ($9.2 billion) or about 0.01% of the total exposures that banks must account for when determining capital requirements. Just two banks, which the report didn’t identify, made up 40% of the total.
The sharp rise of token prices over the past decade has created an acute need among investors and companies for crypto-related services like digital-asset custody, market making, and lending. In other asset classes, big banks are among the dominant players for those services, but in crypto, they have almost entirely ceded the market to crypto-focused start-ups.
That has been a boon to companies such as Coinbase Global (ticker: COIN). Institutional investors seeking a firm to custody their digital assets have needed to tap Coinbase and other such firms to provide the service in lieu of banks. While some traditional market makers such as Jane Street Capital have expanded to include crypto services, banks that act as market markers largely haven’t, the report said.
JPMorgan Chase CEO Jamie Dimon last week in congressional testimony said he as a “major skeptic on crypto tokens,” labeling them as “decentralized Ponzi schemes.”
But executive skepticism aside, part of banks’ issue is that regulators for the most part have also made it much more difficult for them to offer crypto-related services.
In August, the Federal Reserve Board released guidance saying that banks under their supervision needed to assess whether crypto-related activities were “legally permissible” and to notify the board before engaging in them.
Some regulatory clarity surrounding crypto assets could come next year, as Congress considers legislation that would specify which agencies have authority over tokens and how the Fed and others should treat them.
We agree that the lack of regulatory clarity is indeed a problem, but that’s why the likes of Jamie Dimon and his fellow financiers are hostile to crypto. They know crypto is a direct threat to centralized banking. It disintermediates them from their position of crumb-gathering and interest and fee-charging.
Crypto as a means of transferring large sums across borders and without third party interference is already cutting TradFi out of billions in transactions. And when Silvermint solves the crypto trilemma, enabling Web3 and instantaneous, censorship-resistant daily transactions – it’s the beginning of the end of centralized finance.