Despite the world’s top banks and financial institutions taking periodic jabs at the cryptocurrency market, a behind-the-scenes look suggests substantial interest.
With the rising number of blockchain patents, crypto experiments and cross-border blockchain remittances, cryptocurrencies are an asset class the banks can show disdain toward, but not avoid.
Two-Faced Banking Show
The CEOs of two top American banks–JPMorgan Chase & Co and Goldman Sachs Group Inc.–have been public with their reluctance toward cryptocurrencies, with JPMorgan CEO Jamie Dimon famously calling crypto a “giant fraud” in 2017 and Goldman Sachs CEO Lloyd Blankfein citing “crypto mania,” alongside terrorism, as a market risk. However, the banks’ recent actions prove otherwise.
JPMorgan and Goldman are both reportedly facilitating bitcoin trading, both actual and derivatives, on behalf of their multi-millionaire clients. Other financial institutions, meanwhile, have hired approximately 20 traders to develop crypto-based financial products for customers, as reported by the Financial Times.
The arrival of institutional interest in cryptocurrencies has also led to the setup of custodian services exclusive to digital assets–which will store private keys, worth millions of dollars, in bank-owned safe boxes.
Although asset security and managing investor risks remain a valid concern in the digital asset sector, bullish Wall Street analysts believe the custodian market could potentially “unlock” billions of dollars worth of bitcoin and other cryptocurrencies.
Lucrative Custodian Sector
The custodian business model is lucrative to banks as well. Just as exchanges, mining and wallets are now worth billions of dollars, the custody market could bring fortune in the form of fees and other asset handling charges for institutional risk takers.
However, there is still a significant concern regarding crypto’s inherent, intangible nature–a stark contrast to the world of gold and stock certificates.
While private keys are physically impossible to hold, custodians can utilize everything from air-gapped, “cold storage” crypto wallets locked away in underground caves to steel vaults and Swiss military bunkers.
For now, ItBit, Coinbase and the Winklevoss-owned Gemini are the only private players providing custody services to wealthy investors; however, only ItBit and Gemini possess custody charters. Meanwhile, banks like Goldman and JPMorgan are attempting to close this gap.
Internationally, the Japanese financial service Nomura launched a crypto custody service, named “Komainu,” aimed at high-net-worth individuals holding over $10 million in cryptocurrencies.
Wall Street Waiting to Jump?
Coinbase Custody head Sam McIngvale insists investor interest in digital assets spurs newfound attention toward the crypto-custodian sector, given enough security and risk management is provided. He noted:
“People were saying: ‘Hey, we’re already holding bitcoin with you, we trust you, but we need more; we need a regulatory component, we need monthly statements, we need a different type of insurance.’”
McIngvale added that Coinbase is aiming to store $5 billion in institutionally-owned cryptocurrencies before the start of 2019, an astronomical number given 2018’s notorious bear market and diminishing retail interest.
Amidst all the negativity, however, is Goldman Sachs’ Blankfein, who, during a New York’s Economic Club appearance, noted that money “morphs” into unexpected forms and it’s premature at this point to disregard Bitcoin taking over as a solid store-of-value.
As it stands Wall Street is not precisely anti-crypto, and it will whole-heartedly cash in when the opportunity and adequate regulations are available.
Cover Photo by Martin Ceralde on Unsplash