Big banks and traditional financial institutions who stand to lose out the most from the blockchain revolution remain opposed to the growth of decentralized currencies — but recently released data demonstrates that slow-moving centralized financial structures are slowly being eroded by distributed ledger based technology, hinting toward the inevitable overthrow of the global financial hegemonic paradigm.
Declining consumer trust in banks, the rapid proliferation of blockchain-based payment solutions, and the rapid endorsement of crypto-assets from regulatory bodies around the world has dramatically accelerated the rate at which cryptocurrencies are beginning to supplant traditional financial organizations, and it’s beginning to affect them where it hurts the most — the bottom line.
Big Banks Don’t Want Crypto Clients
Data recently published by Diar shows that large-scale financial institutions and banks are pushing against the inertia of blockchain-powered financial systems and cryptocurrencies, which is beginning to have a negative impact on their position within the competitive banking market.
The cryptocurrency ecosystem, while fundamentally at odds with fiat currency, still relies on traditional banks and payment gateways in order for market participants to exchange crypto-assets for real-world goods and services — the list of companies, retailers, and platforms that accept cryptocurrency is growing, but global adoption is still at a nascent stage.
Mainstream banks are reluctant to provide cryptocurrency exchanges and other blockchain finance platforms with banking services. Diar data shows that executives from some of the largest banks in the world, such as ING, UBS, and Credit Suisse, all state that they will not participate in the cryptocurrency ecosystem even when directly requested by clients.
Some have taken an actively hostile stance toward the cryptocurrency market, such as US banking giant Wells Fargo, who recently banned Bitcoin and crypto debit card purchases via credit cards. With Wells Fargo recently demonstrating a revenue fall from $22.3 billion to $21.9 billion partly due to Federal Reserve sanctions on the bank as a result of “widespread consumer abuses,” the financial landscape is ripe for decentralized disruption.
Crypto-Friendly Financial Institutions Double in Size
While large banks may avoid the cryptocurrency market, smaller financial institutions have taken the opportunity to capitalize on the rapidly growing blockchain ecosystem. There are currently just four banks in the United States that provide banking services to cryptocurrency companies: Metropolitan Commercial Bank, Silvergate Bank, Cross River Bank and Signature Bank.
Banks that have begun to support the cryptocurrency market, however, have demonstrated a dramatic increase in total assets. Silvergate Bank, which now provides support to over 250 cryptocurrency and blockchain companies, increased total asset holdings from $978 million in 2017 to $1.9 billion in 2018.
Similarly, Metropolitan Commercial Bank doubled asset holdings from $1 billion to $2 billion from 2017 to 2018, primarily due to crypto-driven business.
It’s becoming clear that mainstream banks can no longer ignore the dramatic financial impact of the cryptocurrency ecosystem. Venture capitalist Spencer Bogard recently commented on the rapid growth of the crypto market the influence it exerts on traditional finance in an interview with CNBC:
“Most of these banks have heard about the numbers or seen the numbers that companies like Coinbase and Binance are putting up. There’s a real risk that some of those companies could overtake some of Wall Street’s biggest banks if they don’t get in the market.”
Bank-Issued Cryptocurrencies Probably Won’t Happen
Banks that follow the inertia of the cryptocurrency market may currently be able to generate profits from supporting it, but the future of banking is uncertain.
The possibility that centralized banks may launch cryptocurrencies of their own has recently been dismantled by the Federal Reserve Bank of St Louis in a recent report that presents a non-case for central bank cryptocurrencies, stating that the call for a central bank cryptocurrency is “somewhat naive.:
“The key characteristics of cryptocurrencies are a red flag for central banks. That is, no reputable central bank would have an incentive to issue an anonymous virtual currency … Once we remove the decentralized nature of a cryptocurrency, not much is left of it.”
The inevitable decay of the centralized banking system as a result of the proliferation of blockchain technology is even evidenced by studies performed by banks themselves — a Citi GPS report entitled “Digital Disruption: How FinTech is Forcing Banking to a Tipping Point” identifies blockchain technology as a key thread to custody and back-office banking services, rendering them “obsolete.”
Ultimately, the increasing proliferation of crypto-banks and an exponential increase in the rate of adoption of cryptocurrencies, coupled with the launch of real-world blockchain technology integration across the financial industry is set to transform the economic landscape as it currently exists.
Cover Photo by Mike Wilson on Unsplash
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