The banks tried to stop bitcoin, but did not succeed. So they took it over. It is on this basis that the independent financial journalist specialising in digital assets, François Rémy, has written the book “Comment les banques kidnappent le bitcoin” (How banks are kidnapping bitcoin), published by Chronica.
In an interview with Paperjam+Delano Finance, the author explains his approach: “Documenting and gathering the data that supports the trend that some dub the ‘bitcoinisation’ of the banking industry or the ‘Wallstreetfication’ of cryptocurrencies.”
Yet many banks are still extremely wary of cryptocurrencies. This is evidenced by the compliance policies of some of them, which still prohibit transactions from and to cryptocurrency trading platforms.
“It’s a paradox. Pro-crypto-currencies speak of the schizophrenia of finance,” Rémy points out. He reminds us that banking institutions are nevertheless eyeing the technological properties offered by cryptocurrencies, both in terms of the search for efficiency and the traceability of financial flows. These are all specific features that are useful for compliance teams, for example.
Banks are taking advantage of this to catch up on digitisation.
Blockchain, the underlying technology of cryptocurrencies, is also increasingly appealing to the financial industry. “In terms of all the major technological themes in the industry, the signal is for tokenisation,” observes Rémy. And he adds: “The entire financial system, which is intermediated and regulated as much as possible, is losing energy and efficiency in many places.” Quite naturally, financiers are seizing on cryptocurrency technology, allowing for lower costs, higher efficiency and shorter transaction times. “Banks are taking advantage of this to catch up on digitisation.”
Pressure from customers
In addition to the technology, many players have been quick to listen to the growing demands of some of their customers. Based on discussions with private bankers, Rémy recounts the embarrassment of some financial professionals: “They had clients who saw opportunities to achieve very high returns in less than a week with cryptocurrencies and therefore wanted to allocate crypto assets to their investment portfolios.” This is against a backdrop of savings melting away in bank accounts and stock market returns struggling to convince. On the other hand, “we see cryptocurrencies outperforming, so we want them.”
This is without counting on the competition led by neobanks and established fintechs, which has begun to invalidate the reputational risk of cryptocurrencies put forward by traditional banking players. In a twist of history, Rémy even considers that banking institutions have turned the situation to their advantage: “We now observe that banks have appropriated cryptocurrencies by playing the trusted intermediary for these cryptocurrencies that have a bad reputation.”
If the central banks, the historical players in currencies, did not react, then the technology would not be interesting.
While the financial industry is making its way in the cryptoasset world, the latter is now facing a new reef: central banks. Comparing the central banks’ crusade against cryptocurrencies to the concern of postal companies during the birth of email, Rémy sees a source of opportunity. “If the central banks, the historical players in currencies, did not react, then the technology would not be interesting.”
Competition from central banks
While central banks were also lagging behind in terms of technological transformation, most are now developing their respective centralised digital currency projects. In response, “commercial banks are directly concerned,” says Rémy. Citing Morgan Stanley’s forecasts for 2021, he explains that total deposits in the eurozone would fall by 8%, or €873bn, if all citizens over the age of 15 transferred their money to European Central Bank-controlled wallets.
Is the business model of commercial banks under threat? Even if it is still unclear, as centralised digital currencies are being developed in a muffled manner, Rémy expects “a technological tsunami to be underway that will have consequences for our banking system, even on a personal level for the citizen”. This is pushing some banking institutions to develop their own payment systems, based on stablecoins backed by the dollar or the euro.
If we now have a 400-page regulatory document, Mica, it is in a way a validation of the cryptoasset market.
Despite the central bankers’ slings and arrows against crypto-currencies, Rémy expects the worlds of centralised and decentralised digital currencies to coexist. He points to the planned adoption in 2023 of the Mica regulation, framing the cryptoasset industry. “If we have a 400-page regulatory document today, Mica, it’s kind of a validation of the cryptoasset market.” Consumer demand for cryptoactives is now a reality that regulators and lawmakers must deal with “by offering protection to investors and taxing it all.”
Read the original French version of this interview on the Paperjam site. This article was published for the Paperjam+Delano Finance newsletter, the weekly source for financial news in Luxembourg. Subscribe using this link.