Rewind eight years, at the World Economic Forum in 2014, Jamie Dimon, CEO of JPMorgan Chase, one of the world’s leading banks, denounced Bitcoin as a ‘terrible store of value that was also being used for illicit purposes.’
Fast forward, a year later, in 2015, the New York Department of Financial Services began awarding licenses to Bitcoin firms. Bitcoin today has over 106 million users, with daily Bitcoin users touching 400,000, and the number of digital currencies skyrocketed.
And in 2019, JPMorgan launched its own digital currency. Come 2021, JP Morgan Chase has invested $206 million in 8 blockchain and digital asset-based investments, including ConsenSys, an Ethereum software company.
Today, 55% of the world’s 100 biggest banks by AUM (Assets Under Management) have made investments in companies and projects related to cryptocurrencies and blockchain, as per Blockdata. The banking industry is now attempting to catch up on lost time. Far ahead of the time when banks used to caution authorities about cryptocurrencies, banking industry leaders are now complaining that regulators have not responded swiftly enough, losing them important time in their mission to compete.
Various financial institutions are hedging their bets and have started taking Bitcoin seriously, and want to partake in its growth. Blockchain technology is already playing a significant role in many big institutional banks, lending efficiency and immutability to their processes and records. Banks have invested in some of the early Bitcoin companies to gain an understanding of how the sector is developing as well as access to the technology that is being developed.
The world’s 13 leading banks had invested $3 billion in cryptocurrency and blockchain-related companies while participating in funding rounds with multiple investors. Banking giants such as Standard Chartered and BNY Mellon have made huge investments to the tune of $ 380 million and $321 million in multiple digital asset classes, including budding cryptocurrencies such as Ripple and Fireblocks. Barclays has been the most active investor in over 22 blockchain companies and projects.
Banks are also engaging in facilitating cryptocurrency-related transactions by offering multiple services. Banco Bilbao Vizcaya Argentaria, for example, provides its users the purchase, sale, and custody of bitcoins, though only through its Swiss subsidiary for the time being. The bank has already expressed an interest in expanding these services to other countries once the matter is regulated. Solaris Bank, for its part, has developed its very own digital asset custody service, which it offers to the customers in Germany and other institutions, not to mention the recent launch of Sygnum Bank in Switzerland, a financial institution solely focused on digital assets.
Changing Perspective of Banks
The possibility of vast sums in new deposits is reason enough for any bank executive to consider blockchain-based payments. But it’s the growing recognition that the future of payments is digital – has piqued their interest in cryptocurrencies.
Financial Institutions in the US understand that digital currencies and related rails will coexist with ACH (Automated Clearing House) and Fedwire. Rather than dealing with integration issues in the future, banks are looking into billing frameworks that can integrate traditional rail tracks with digital rails.
Bank executives are constantly looking for new ways to keep their customers coming back for more. Blockchain-based systems enable businesses to embed B2B payment functionality into their systems via APIs, making payments much more direct.
Increased Innovation in the Crypto space
Bitcoin has sparked significant innovations outside of finance. Many financial institutions, for example, are developing blockchain apps to handle asset transactions, trade settlements, title transfers, digital ownerships, smart contracts, and asset management services for the next generation. These innovations will allow banks to reduce operational costs while increasing efficiency.
The potential rewards from investing in cryptocurrencies are undoubtedly driving most of the job development in the cryptocurrency business. Over time, cryptocurrencies such as Bitcoin, Ethereum, and Cardano have proven quite stable. Despite the volatility risk, it’s evident that major institutions aren’t trying to stay away from the possible benefits.
Many leading banks have added approximately 1,000 new cryptocurrency-related posts since 2018. Across all Wall Street firms, there has been a roughly 250% growth in cryptocurrency expert employment over the last three years. Large corporations are bringing in bitcoin experts because there is a great deal of money to be gained by assisting consumers in trading cryptocurrencies.
Coinbase and Gemini are built particularly for Crypto, but Robinhood allows users to trade Crypto alongside conventional assets. Big banks, such as JP Morgan, have yet to integrate cryptocurrency exchanges beyond crypto ETFs (based on cryptocurrency futures), although, with the profit to be made from allowing the customer to do so, it’s easy to see why larger firms want to learn more about how they can incorporate crypto trading into their business models.
Cryptocurrencies are financial vehicles with great potential, especially in the upcoming era of web3 that will focus on user sovereignty and decentralized infrastructure, and banks and financial institutions worldwide recognize the same. With the potential to outperform conventional banking products in efficiency and transparency that cryptos offer, banks cannot but embrace the opportunity that Bitcoin and cryptocurrencies are.