• Thu. Jun 13th, 2024

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

Three of the crypto industry’s top financial institutions recently failed in the United States. Speculation has been rife as to the future of the relationship between digital assets and fiat currencies. This has led to extreme uncertainty regarding the future of the global financial sector and fears of a global recession or worse float about, with no end in sight.
It’s either of two things: the digital asset revolution starts here and now, or this could be the beginning of the end for the industrythe industry.
Our panel of experts believe the embers of the revolution have come aflame and this is the takeoff point. The point where adoption achieves critical mass.
Here’s what they had to say!

Eric Chen, CEO and co-founder of Injective Labs, Core contributor to Injective

 The current tension between cryptocurrencies and banks is not so much a crypto and bank issue, but a centralized finance issue. Recent news surrounding crypto-friendly banks like SVB only underscores why blockchain and DeFi exist, and this is reflected in the crypto market.

 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.
 
Overall, the development of blockchain technology and DeFi is challenging the traditional model of centralized finance and prompting a shift towards a more decentralized system. While there may be initial resistance, the potential benefits of DeFi for users and financial institutions alike suggest that the future will see increased collaboration and innovation between these two industries.

Tim Tully, CEO  at Zelcore

 The immediate future of cryptocurrencies and banks is in question, and there is a rocky period for regional banking players in particular. A long-term low rate environment followed by a drastically changed higher-rate environment has created a dramatic duration imbalance. This dynamic, combined with poor support from the Fed, has led to “run-on ban” scenarios. This condition will take months, if not quarters, to play out with one of the likely outcomes that the super banks get even more significant as individuals pursue a flight to perceived safety. Moreover, having most of the world’s assets in a few hands exacerbates a growing problem of centralized control and, more importantly, entire risk.
 
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.

Tony Petrov, Chief Legal Officer at Sumsub

 Why did Silicon Valley Bank collapse? There are many articles saying that the reason is that SVB was “unprepared” for the Federal Reserve aggressively pushing up interest rates. In other words, SVB has invested in long-run US Treasury papers more than the others, and, when the Fed Reserve increased the rates, those papers that SVB had bought effectively lost their value. This situation provoked a bank run and SVB failed.
 
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.
 
According to Boeing, approximately 80% of airplane accidents are due to human error. I think this fact, taken as a metaphor, can also work for the financial industry. What we are witnessing now is the crash of the economy based on “reckless capitalism,” in which compliance procedures and risk management were held in a stall in the backyard, also known as “tick box exercise.” The only sad consequence will be that the cryptocurrency businesses will have much less of the chance to find a partner bank, although they have had absolutely nothing to do with the reasons why SVB, or Signature, or Silvergate crashed.

Max Shilo, Digital Assets Analyst at CoinLoan

It is true that there are a lot of discussions going on regarding the potential banking crisis. With this, of course, crypto comes along as it technically stands for another form of money.
 
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.

Ruadhan O. Founder and Lead Developer at Seasonal Tokens 

The largest degree of cryptocurrency integration into the banking system is likely to occur in countries where Bitcoin has been adopted as legal tender, such as El Salvador and the Central African Republic. In Europe and the United States, regulators are likely to maintain limits on the cryptocurrency holdings of banks, and restrict their ability to offer cryptocurrency services to clients. This will mean that there won’t be any merging of the banking and crypto industries in Western countries. Banks will be needed by crypto companies to handle payments in fiat, and new regulations for cryptocurrency businesses, as well as the banks that deal with them, are likely to be imposed over the coming years to prevent the risk of large failures like FTX and SVB.

Emil Åkesson, Founding Partner and Chairman at CLC & Partners

The relationship between cryptocurrencies and traditional banking is currently marked by both tension and potential, with recent setbacks in crypto-friendly banking highlighting the challenges ahead. While cryptocurrencies offer advantages such as decentralization, lower transaction fees, and increased financial inclusion, traditional banking provides critical services like credit and wealth management within a robust regulatory framework that safeguards consumers and ensures financial stability.
 
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.
 
The question is who will draw the shortest straw? If I were to bet on it, I would say that the innovative and entrepreneurial spirit of the crypto sphere will give them a significant head start. Only to be acquired by the bottomless war chests of traditional banking.
 

Michel Caspers, Co-Founder & CMO of Unity Network

By gradually increasing interest rates and stopping the infinite printing of money, the Federal Reserve could have prevented the closure of several US banks. The good news is that the current situation can benefit the crypto market, as it showcases its true potential as a perfect hedge against inflation. Although this may make traditional bankers uneasy, it’s time for them to adapt to a new reality where cryptocurrencies have earned their place and are no longer seen as toxic or dangerous. It’s time to embrace the power of crypto and welcome it as a vital player in the financial world.
 
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.
 
If we can establish clear and fair guidelines, banks and other traditional financial institutions will be more willing to integrate crypto into their services. As a result, more people will have access to the benefits of cryptocurrencies, such as greater financial independence, security, and privacy.
 

Nicole Valentine, Fintech Director at the Milken Institute

 The recent bank failures are a wakeup call for all of us. The collective panic we experienced over the weekend is now being channeled into discussions about the financial stability of the banking system, the role of crypto assets, and what policymakers can do to ensure this doesn’t happen again. There’s plenty of blame going around and after the dust settles, I imagine we’ll discover that sticking to fundamentals and not taking our eye off the wheel, will be the approach to a way forward.
 
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.
 
This moment is not about banks vs. crypto. It is about the infrastructure, management, policies, and culture of the institutions that custody, transfer, and deploy our assets. The future is about managing risk – inflation rate risk, credit risk, cyber risk, deposit risk, and crypto risk. We learned, through this series of bank failures, that social media risk is a new risk factor that we will need to define, analyze, track, and manage

Marius Grigoras CEO at BHERO

 As a crypto expert and CEO of BHero, I believe that the future of cryptocurrencies and banks is not one of hostility, but cooperation. We have seen banks start to embrace the potential of blockchain technology and digital assets, providing custody and trading services to their clients. At the same time, cryptocurrencies are constantly evolving, offering new ways for banks to optimize their operations and reach new customers. In this context, platforms like BHero can act as a bridge between the traditional banking sector and the innovative world of cryptocurrencies.
 
Our fully regulated launchpad is built on the Elrond Network, allowing users to access top blockchain projects in a secure and user-friendly way. By providing an accelerator program for legal DeFi projects, we can help them gain investments, meet legal requirements, and leverage our connections in the field. Ultimately, the future of cryptocurrencies and banks is one of collaboration and symbiosis. The rise of digital assets is reshaping the financial landscape, and banks that are willing to adapt will be able to thrive in this new era.
 

Amanda McCrea, Marketing Consultant at Pelicoin, a Cryptocurrency ATM Network

 The cutting-edge cryptocurrency industry and the traditional banking industry naturally have had trouble finding common ground. Banks can be slow to embrace new technologies and may prioritize what they perceive as security over innovation.
 
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.
 
As most aspects of life become increasingly digital, it makes sense that digital currency will become increasingly important to the economy, boosting the demand for digital currency among banks’ customers. Banks will have to accept some form of digital currency in the future, and cryptocurrency may fulfill that need.
 

Josip Rupena,  CEO at Milo

1. I do believe many banks would like to work with crypto companies if there was clarity for them as many recognize the business opportunity. The past weeks events highlight that if crypto companies want to work with banks they will likely have to have very similar regulated and reporting structures.
 
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.
 
3. Perhaps some part of that statement. Signature Bank was shut down after its customers withdrew billions of dollars in the wake of the collapse of SVB and a criminal investigation. At this time the major platforms have been able to transition to other bank partners and continue operations. However, if more banks decide to stop working with crypto companies this will make it more challenging for customers to onboard US dollars and transact on exchanges.
 
About Milo:  Milo is a financial technology company reimagining the way global and crypto consumers access financial solutions to ‘Unlock what’s possible. By building a proprietary technology stack from the ground up and bringing on a world class team, the company has enabled millions of dollars in U.S. home loans. Milo is passionate about driving digital transformation of financial services, solving real problems, and making a meaningful impact in people’s lives. For more information visit www.Milo.io

Alex Tapscott Managing Director, Digital Asset Group at Ninepoint Partners LLC

 
“The stunning collapse last week of Silicon Valley Bank (SVB) and Silvergate, along with the seizure of Signature bank by regulators Sunday, sent shockwaves through financial markets. The Federal Reserve stepped in to guarantee depositor funds at the defunct banks and to create a much needed window for other banks to easily access liquidity to prevent contagion. We are not out of the woods yet, but things are calmer – for now.
 
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.
 
I suspect that concerns of a government conspiracy to kill crypto are vastly overblown. There are dozens of lawmakers on both sides of the aisle who have eagerly embraced this industry and recognize its transformational potential. When the dust settles from this crisis, hopefully they can work with responsible industry leaders to guide us back to the path of sustainable innovation.”

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Kevin Moore - E-Crypto News Editor

Kevin Moore - E-Crypto News Editor

Kevin Moore is the main author and editor for E-Crypto News.