What Does the Future Hold for Cryptocurrencies and Banking? (Roundtable Interview)

 That said, the future of crypto and banks will be largely influenced by regulatory frameworks and user adoption. As DeFi continues to prove its value and the reasons for its emergence, traditional banks will need to recognize this and adapt to the future of finance.

 

 

Crypto needs a healthy banking system that supports its growth for fiat on/off ramping and for a new paradigm of asset ownership that reduces overall system risk by having a one-to-one relationship with assets in a very decentralized manner. This is the crux of Web3. The technology is currently in place and is building out the inflection points. These significant changes include intelligent contracts, multi-signature, zero-knowledge proofs, etc., all critical elements for a trustless environment to support open and transparent transactions for all.  

 

A new paradigm for not just finance but many other industries is needed.  Last week’s events will catalyze real change underneath the optics of change by the government and large banks.  It will be a moment we will look back on years from now when the mass adoption audience realizes that my assets aren’t even safe at a regulated Top 20 bank in the U.S. People will need to protect their family’s future. We are headed for a hybrid world where traditional banking and Crypto co-exist, but make no mistake, these recent events will force a mainstream digital asset outcome.

 

Sounds like a mistake (don’t put all eggs together) or maybe even like an accident, bad luck. A cool bank that helped startups has ended up as a startup ( i.e. fell a victim of bad luck). However, different kinds of bad luck are now widely addressed in risk management where they are called risk factors. For example, the founder of FTX also explained the recent crash of the exchange by a coincidence of unfortunate consequences and bad will of his rivals, whereas in real life we have clearly seen crimes and malpractice, that in the absence of risk management practices, have led to the collapse.

 

 

I think it’s way too early to start comparing and bringing together those two, especially since crypto holds no real value to the world and is not used by 98% of the people, whereas FIAT and banks are used by everyone.

 

The controversial story here is that without banks and FIAT, crypto would not exist. They are interconnected. If banks do badly, crypto does so as well. If there is no FIAT, the crypto can not be bought nor can it be used as it is mainly being exchanged for cash in order to actually be useful on a broader scale. Now, when it comes to the future of banks and crypto – they both rely heavily on the fundamentals, meaning on the macroeconomy. If the economy is doing well, both are doing well, especially banks. They also rely on interest rates and available liquidity.

 Currently, the banks seem to be more dependent on liquidity since many of them are secretly insolvent, and if people start withdrawing money at the same time, some banks will not be able to satisfy everyone’s needs. In short, the future of both banks and the crypto ecosystem will heavily depend on the monetary policy.

 

Cryptocurrencies and traditional banking coexistence, and even cooperation, is becoming more likely as each industry learns from the other. If banks can safely integrate innovative technologies from the crypto sphere without risking regulatory setbacks, they will. As long as they can increase their revenue and bottom line by doing so. And cryptocurrency companies would most certainly benefit from the stability and consumer protection offered by traditional banking. With the significant potential for future increased earnings, this will very likely occur at some point. Whoever does that first and build a financial system that caters to all the needs of the users will reap massive benefits by doing so.

 

By addressing the needs of the users in the financial system and recognizing the fundamental need to stay connected in a globalized world, cryptocurrencies and traditional banking should collaborate and forge a path toward a more integrated and mutually beneficial relationship. This coexistence will enable each industry to leverage its strengths and compensate for its weaknesses, ultimately shaping a more resilient and inclusive financial future. Given the business sense behind that, it will likely be another couple of years of competition ahead of us. After which a period of heavy competition and mergers and acquisitions will most likely follow.

 

 

For cryptocurrencies to be widely adopted, governments must create regulations that give banks the confidence to embrace them. This means that we need to strike a delicate balance between innovation and regulation to ensure that crypto can flourish while minimizing risks to consumers and financial institutions.

 

 

The cryptocurrency community huddled up amidst recent failures and called for a legislative and regulatory framework for the nascent industry. The community of leaders also made it a point to separate those who are capable and building from those who are in over their skis.

 

I believe the banking industry, which can be traced back to 1780, will come together and assess what it means to be a safe place to store your money in the modern era where digital dominates.

 

 

In spite of the failure of some particularly crypto-friendly banks, in a world of increasing digitization of all aspects of life, banks will likely eventually have to warm to a form of digital currency or their customers will leave them behind. Some banks in the United States have made small forays into crypto acceptance, such as Wells Fargo allowing wealthier clients to get crypto exposure in their portfolios. Similarly, some banks allow customers to buy cryptocurrency with the funds in their bank account, but do not provide a digital wallet for the storage of cryptocurrency.

 

 

2. Higher demand pushes prices up – similar to stocks. Some cryptocurrencies have a maximum supply and only increase by a limited release schedule, such as bitcoin. This creates a scarcity factor due to the small amount of available float to purchase.

 

 

However, the events of the past few days have already had a dramatic, immediate, and potentially long-lasting impact on the digital asset industry in the United States.

 

Throughout the crisis, SVB has been mostly portrayed as the favorite bank of venture-backed startups and the technology industry more generally. That is true, but it is also one of the most important banks to the digital asset world, providing banking services to many of the largest firms like Circle and Coinbase, and acting as an on/off ramp for many more businesses and countless everyday users. Signature Bank and Silvergate played similar critical roles in the ecosystem.

 

In a few short and tumultuous days, the U.S. digital asset industry lost its three largest banking partners.

 

This may be just an unfortunate accident – collateral damage from the broader crisis. After all, the biggest U.S. banks don’t bank the digital asset industry, leaving smaller players to pick up the business. Those firms’ deposits are typically less diversified, and the businesses are not always as well capitalized, making them more vulnerable to shocks.

 

This may be just an unfortunate accident – collateral damage from the broader crisis. After all, the biggest U.S. banks don’t bank the digital asset industry, leaving smaller players to pick up the business. Those firms’ deposits are typically less diversified, and the businesses are not always as well capitalized, making them more vulnerable to shocks.

 

But some are wondering openly if this is not part of an effort by some of Biden allies, such as Elizabeth Warren to kneecap the industry by removing its banking partners and severing any connection to the fiat-currency denominated world – a so-called “Operation Chokepoint.” Former Congressman Barney Frank, until recently a member of Signature’s board of directors, threw fuel on the fire saying “I think part of what happened was that regulators wanted to send a very strong anti-crypto message. We became the poster boy because there was no insolvency based on the fundamentals.”1 Frank may know something we don’t and be alluding to a behind the scenes effort by lawmakers and regulators to try and crush a nascent industry – or he may be trying to deflect blame for the collapse of a bank on his watch. The truth will reveal itself in the goodness of time.

 

By now you might be asking, “Why does the digital asset industry need banks?” After all, Bicoin began as a movement about decentralization, creating an alternative to the central bank system that allowed anyone anywhere in the world to “Be their own bank.” DeFi promises users the benefits of finance without intermediaries. Yes, self-custody is one of the superpowers of digital assets and DeFi is accessible to anyone anywhere with or without a bank account. However, in the dollar-dominated world, almost all economic activity happens “off-chain” outside of crypto. The migration of trillions of dollars of assets to blockchain platforms is one of the great economic opportunities of our era, something Coinbase, Circle and others were quick to seize on. But to get money and other assets to the on-chain superhighway, we need an on-ramp from the country roads of legacy banking.

 

What happens now? Well, for starters, there is a business opportunity to pick up the business Silvergate and others were doing. In a free market, that shouldn’t take long. Perhaps this is an opening for bigger banks to do more on the frontier of finance: BNY Mellon is building a custody offering and others like J.P. Morgan are experimenting in Web3.

 

If this truly is an industry-wide ‘crackdown,’ then I fully expect many businesses and would-be-entrepreneurs will just leave the U.S. altogether for greener pastures off-shore. Abu Dhabi has just launched a $2 billion fund to attract Web3 talent. As one government closes a door, others open windows. This would be a drastic, short-sighted, and self-defeating move by the government – ceding its leadership as the innovation engine of the digital economy and the global financial services leader.