Effect of cryptocurrency on banks

Below are some reasons that can help answer this question. This article also outlines what can be done to get the banks involved with cryptos. They see no opportunity in it. They are not under the control of a centralized authority like a bank, government, or agency.

Banks are, thus, shy about dealing with the coin because one managed by a central bank loses its appeal. This reason leaves many people believing that the coin may become obsolete. Many reasons are attributed to this, such as liquidity, market size, and the number of buyers. To banks, this is a red flag, a risk given that the price is not stable. They see the coin remaining as an unstable investment medium in the long run.

Banks see this as a loophole that many traders can exploit. They fear people may violate regulations on anti-money laundering AML. In reality, it is impossible to implement know your customer KYC regulations successfully. How Do Banks Get Involved? Banks need to come on board and embrace this technology. It is counterproductive to have them as enemies of the coin. Having them on board may lead to the adoption of cryptocurrencies.

In fact, the move has the potential to streamline, upgrade, and improve financial services. Some things need to change for this to happen, and these are: Custody Services. Banks can be granted the right to hold cryptocurrency custody services for customers. They can get the right to hold unique cryptographic keys linked to private wallets. Since these are key banking regulations, banks can enforce them with cryptos. BofA also stated that Bitcoin prices remained very volatile, making it an impractical store of value or payments.

On the other hand, Bank of New York Mellon has started offering cryptocurrency and digital asset custodian services to its asset management clients. Across the Atlantic, NatWest stated it will not engage with customers who accept payments in Bitcoin or similar cryptocurrencies, while HSBC announced that it would not permit transfers to or from digital wallets or allow its customers to purchase shares in companies associated with cryptocurrencies.

Both these UK banks believe that cryptocurrencies are too risky in their current form and may not comply with existing compliance and regulatory frameworks. Deutsche Bank took an ambiguous stance, mentioning that Bitcoin prices have factored in the shift towards cross-border adoption of digital currencies, and that for Bitcoin to live up to its reputation, it has to demonstrate its value as a means of payment. Thus, Deutsche Bank expects Bitcoin prices to remain volatile on account of its limited tradability.

Many banks and financial institutions have reversed their previous negative opinions about cryptocurrencies, in line with their growing popularity. It subsequently slammed Bitcoin, stating that it is not an asset class, and warned against hedge funds trading in cryptocurrencies. However, in mid, it advertised for a VP of Digital Assets, and has begun trading Bitcoin futures with crypto-merchant bank Galaxy Digital.

Detractors express concern over regulatory action — especially in China and India, potential price bubbles, capital efficiency, safety, insurance and custody of assets, and the environmental impact of cryptocurrencies. However, global banking and monetary systems are all set to undergo a comprehensive digital transformation in the new decade.

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