Institutional Adoption: How Big Banks Are Quietly Embracing Cryptocurrency

Cryptocurrency trading has evolved, and it’s not just the retail investors or tech-savvy traders who are in it. Big banks are making quiet moves that have seen them integrate crypto services into their systems. They are silently but actively offering clients access to digital asset trading and custody services. One wonders if banks will continue to adopt cryptocurrency or ditch it mid-point. It’s not looking like they will. 

According to a 2021 report, 76% of bank executives said they will use blockchain and crypto assets in the next 10 years, while 66% of TradFi firms are doing something with DeFi. Fidelity Digital Assets, VanEck, BNY Mellon, BlackRock, Franklin Templeton Investments, and the famous JP Morgan are all connected to crypto. That means they have seen cryptocurrencies as the next phase of evolution in the financial landscape. Traditional finance isn’t sitting on the fence anymore. This blog explores how cryptocurrency will reshape the economic system and the role of banks in pushing crypto to the mainstream. 

Why Banks Are Giving in to Cryptocurrency

Perhaps, the major reason banks are adopting cryptocurrency is to stay competitive. Recall that many banks were cautious of offering crypto trading and custody services, citing their volatility, lack of intrinsic value, and insufficient regulations. JPMorgan Chase CEO Jamie Dimon famously labelled Bitcoin as a “fraud.” Guess what? The same JP Morgan offers crypto ETFs and blockchain-based services. The shift by banks like JP Morgan isn’t driven only by the idea to stay competitive – It is driven by innovation, customer demand, and regulatory clarity. 

Paradigm shared some interesting insights about financial institutions in its latest survey report. According to the survey, these financial entities reveal that investing in technology and automating processes will improve efficiency and reduce manual labor. The report also reveals that reducing operational overhead, outsourcing non-core functions, streamlining compliance, and investing in technology to ease integration will cut costs and deliver financial services effectively. What does this mean? Blockchain technology can benefit banks in more ways than they can imagine. 

Demand for crypto assets is at an all-time high. Hedge funds and high-net-worth individuals are constantly seeking exposure to crypto for portfolio diversification and to hedge against inflation. In countries with volatile economies, the latter is more applicable. Banks, afraid to lose these clients to crypto companies, are stepping up to offer similar services. Also, users leverage crypto for payment settlement in unbanked places. 

Finally, the crypto space seems to have clearer regulations. Frameworks like the EU’s MiCA are making it easier and more secure for traditional banks to enter the crypto space. The United States is also coming up with clearer regulatory frameworks under the SEC, like the Stablecoin Act, to make the crypto landscape a safer space for investment, innovation, and opportunities. The UK’s FCA has established guidelines governing crypto issuance and payments. 

How Banks Are Shaping the Financial Landscape with Cryptocurrency

Since the start of the decade, banks have moved from being cautious observers to active investors and partners. Many financial institutions, including banks and asset managers, are piloting permissioned and permissionless DeFi platforms. They are also collaborating with existing crypto companies to push crypto adoption and use. 

For example, Bank of New York Mellon collaborated with Fireblocks for wallet integration. JP Morgan’s Onyx partnered with other banks in Project Guardian to implement tokenized bond trades and forex swaps using permissionless protocols. Asset management company BlackRock launched the BlackRock USD Digital Liquidity (BUIDL) Fund to allow institutions to hold tokenized assets on Ethereum. 

Furthermore, Goldman Sachs’ Digital Asset Platform (DAP) also dabbled in the crypto space by issuing tokenized bonds and facilitating repo trading. Currently, Goldman Sachs is exploring blockchain for cross-border payments to reduce settlement times from days to seconds and cut out middlemen. 

These initiatives allow traditional banks to leverage existing crypto infrastructures to scale up faster instead of starting from the beginning. 

Final Thoughts 

Crypto is going institutional, and banks are adapting. Finance and capital markets are evolving, and money is going digital. What we see now is only the tip of what’s to come. Many more banks will adopt crypto, but the risk of hack and volatility is still evident. Banks must tread carefully as they integrate digital assets.