The crypto space has come a long way since its inception in 2008. Many areas have improved over the last 12 years, such as custody and exchange solutions. If you ask the early adopters of crypto, they can tell you stories about how hard it was to set up a wallet or how cumbersome it was to go to a meetup and exchange Bitcoin (BTC) without being scammed.
Since then, things have changed for the better when it comes to user experience and user interface. Nowadays, creating a cryptocurrency wallet is as easy as setting up an email address. The same goes with purchasing crypto — hundreds of reliable exchanges have emerged in recent years, enabling the simple and secure purchase and sale of cryptocurrencies.
While I could mention many more examples in the crypto space that have improved over the last decade, there is still a major problem with most products and services in the crypto space: they are not in a fully integrated setup. This is where crypto banks come in and will be game-changers for the crypto space.
When I use the word integrated, I refer to two areas: the first is in regards to the crypto ecosystem, which offers a great number of interesting and promising applications and services that are distributed over several platforms and service providers; the second area is in the context of the financial services industry, where crypto banks offer an integrated solution due to being a gateway between the crypto space and the traditional finance space. I will cover both areas, as they are equally important to understand the revolutionary aspect of crypto banks.
Crypto banks allow you to have your crypto assets and your traditional assets — such as fiat currencies, securities and more — in one account. Most people who are into crypto must deal with multiple third parties. You probably have some crypto assets on multiple exchanges, hardware wallets, on services providing non-bank lenders, and maybe you’ve already interacted with popular decentralized financial applications. Of course, we should also not forget about your fiat bank account, which you need in order to send funds to another party to purchase crypto assets and send your revenues back when selling crypto.
Ultimately, you have your data and assets all over the place, thus dealing with multiple counterparty risks.
Crypto banks provide that you have all your various crypto holdings, fiat currencies and services in one convenient bank account and are dealing with one service provider. While distributed ledgers are good, distributed control is bad. Crypto banks allow you to have centralized control over your decentralized assets. This eliminates the current risks many crypto investors have when dealing with a large number of different providers in different jurisdictions. With a crypto bank, you have one specialized gateway to multiple services and products.
A bridge to the old world
Even though the benefits of crypto assets are obvious, the number of traditional players such as pension funds, traditional hedge funds or family offices that go into crypto is surprisingly small. While recent announcements such as PayPal’s new crypto offering also show a trend of institutions entering the space, the large majority is not yet doing so. The reason for this is the lack of regulations and trusted partners to work with.
Crypto banks are the perfect partner to help institutional players enter the crypto space, make investments into the world of digital assets, and securely store assets with a full, banking-grade service offering.
Often, institutions want to invest in crypto, but their investors or board of directors are afraid of the risk involved in dealing with crypto assets. However, if a fund can partner up with a regulated bank that specializes in crypto, this can change the opinion of important stakeholders. This could increase the adoption of crypto immensely, as the mass market often follows the big players. Getting more and more institutional players into crypto will benefit the whole space.
Crypto banks work as the bridge between the crypto world and the traditional financial services world. By having a banking license, a crypto bank fulfills the requirements and standards of the traditional financial services world while offering services and products in the crypto space. Creating a seamless connection between these two worlds will be game-changing.
Being regulated is the key for the future
Beforehand, the crypto space used to be mostly unregulated. Similar to custody and exchange solutions, this has changed greatly, benefiting investors in particular. Most jurisdictions have created laws and regulations around crypto assets and are further designing new laws to integrate them into the regulated financial services world such as in Switzerland.
A crypto bank is, by design, compliant with regulations. In order to receive a banking license, a project needs to fulfill all regulatory requirements stated and examined by the regulator. This gives crypto investors the security that there will be no crackdowns on such service providers. If we look at the current situations of several exchanges dealing with regulators for not being compliant, one can understand the benefit of working with a regulated partner.
Globally, the trend is heading toward more regulation. I believe that in the future, offering crypto services without some sort of license will be forbidden. Crypto banks are perfectly positioned, as they have been compliant from the start. This is a major issue for players in the crypto space that have been around since before increased regulations emerged for crypto.
Irony of fate
Although Satoshi Nakomoto’s original idea was to get rid of centralized intermediaries and one of the old mantras of Bitcoin was to “be your own bank,” crypto banks will ironically be the game-changer for crypto assets by offering all services and products in a compliant, one-stop-shop solution.
Currently, Switzerland and the United States are leading when it comes to granting banking licenses for crypto projects, but it can be expected that the number of specialized banks will increase globally over the next few years as their value proposition becomes evident.