According to recent reports, both small banks and multinational institutions are considering offering crypto services to both retail and rich clientele, which is a big step forward for the general adoption of the new asset class. According to Bitcoin.com, the Bank of America research indicates that growing client demand has accelerated banks’ efforts to provide cryptocurrency services.
However, traditional banks are cautious about accepting the usage of cryptocurrencies, feeling that the inherent dangers outweigh the potential benefits. Regulatory authorities like the Office of the Comptroller of the Currency (OCC) are attempting to alter banks’ perceptions of digital currencies, thinking that these assets may help them innovate and become more efficient.
The OCC recently released numerous interpretative letters outlining how traditional banking institutions might engage in digital currency transactions and develop services. This endeavour aligns with the OCC’s aim that more regulatory guidelines will help banks feel more at ease with digital assets. The OCC stated in early January that national banks and federal savings organisations can now conduct payment transactions using public blockchains and stable coins. This enables banks to execute payments considerably more quickly and without the involvement of a third-party agency. In essence, this clarification letter classifies blockchain networks alongside SWIFT, ACH, and FedWire, allowing them to become a part of the wider financial ecosystem.
Banks may be cautious about cryptocurrencies, believing that transactions involving these assets carry higher risk and need extensive and costly due diligence. However, financial institutions and their clients may gain greatly from digital currencies if they are willing to accept the risk.
According to a study conducted by the Association of Certified Anti-Money Laundering Specialists (ACAMS) and the Royal United Services Institute, around 63 per cent of banking industry respondents saw bitcoin as a risk rather than an opportunity, as reported by The Wall Street Journal.
Crypto assets were developed as a non-intermediary, non-tethered alternative to existing financial infrastructure that is not reliant on the capabilities of a centralised government, bank, or agency. Rather than depending on centralised middlemen in these transactions, the blockchain code and distributed structure of the blockchain are trusted.
Several banks do not feel they will be able to thrive in this area since a cryptocurrency managed by a central bank diminishes the appeal of the asset in the first place. The decentralised structure of the currency is regarded as undermining central bank power, leading some to fear that they will be obsolete or incapable of controlling the money supply.
Cryptocurrencies enable peer-to-peer transactions without the need for a regulated middleman, allowing users to move cash rapidly and without incurring transaction fees. Instead of being identifiable by an individual bank account through a financial institution, transactions are simply linked to the transaction ID on the blockchain.
Many banks are concerned about the lack of anti-money laundering (AML) and know your customer (KYC) rules around digital currency transactions because of this sort of pseudonymity. Banks frequently believe that cryptocurrency transactions are untraceable for AML and KYC purposes, which can lead to illicit behaviour and fraud on the network.
Throughout their brief existence, the price of cryptocurrencies, particularly bitcoin, has been very volatile. This is due to a variety of factors such as market size, liquidity, and the number of market players. Banks regard this as a danger since the price hasn’t been steady in the past, and they fear the currency won’t be a reliable investment vehicle in the future. Start investing in bitcoin with Bitcoin Up.
Because there is a lack of guidance and regulation surrounding digital assets, many financial institutions are hesitant to accept them. Banks are also hesitant to enter the cryptocurrency market due to concerns about its security and stability; however, instead of fearing the technology’s hazards, banks should be looking forward to its potential advantages.
The banking industry should also see crypto as a collaborator rather than a competition. Banks may play an important role in the cryptocurrency sector, providing much-needed confidence and security in an otherwise uncontrolled environment. Cryptocurrencies and blockchain technology, in general, can help to simplify operations and propel banking into the next era of efficiency and creativity. Trade crypto here.