Bank traders fear missing out on cryptoparty

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Banks have a growing problem with cryptocurrency. Internal trading desks and a growing array of clients are pressuring top management at big banks to launch services around cryptocurrencies.

Compliance departments and boards are less enthusiastic, but there is a growing sense that something needs to be done to avoid being left behind. It’s just not clear what and how.

The rise of companies built around bitcoin and other digital assets threatens to make resellers look like Wall Street executives who want to look cool in a hackathon: uncomfortable, fulfilled for fear of missing out and striving for relevance.

And aside from the potential dangers of crypto dragging their reputations into the mud at one point, banks also face a series of very real challenges in their efforts to go digital: Their technology is not up to date. height ; they cannot move fast; they must comply with regulations which are currently unclear or not yet in place. Talent is increasingly difficult to find and keep. What if everything turns out to be a big scam?

Despite the potential challenges, the big banks can no longer ignore the digital parts, a market that has reached $ 1.8 billion.

“The universe of digital assets is too large to ignore. We believe that crypto-based digital assets could form a whole new asset class, ”Bank of America said in its first-ever crypto research note.

Several large US banks have made announcements regarding their involvement or business plans in digital markets, while many European dealers are following suit.

Some, like Goldman Sachs, have chosen to make a splash with their crypto efforts, deliberately creating a lot of noise about its baby steps. European banks are more tortured and, as a result, messaging is mixed.

In February, the research team of German lender Commerzbank sent a note explaining why its analysts do not cover bitcoin, noting that the bank “does not consider it its responsibility to comment on the evolution of investment prices. purely speculative or predict. “in September, the lender had set up a team of digital assets.

Decide where behemoths traditional finance will integrate into the world of cryptocurrency is tricky. Custody, highly technological processes and storage complex digital assets is risky and very difficult to ensure.

Trading is just as dubious because at present, banks can only buy and sell futures and other non-monetary contracts, making it difficult to generate the kind of returns that native trading companies of. cryptography can. Loans are prohibited at this time. And companies that have been active in digital asset markets are far from afraid.

“Crypto is growing in.. The traditional financial services market,” said David Kinitsky, managing director of Kraken Bank. [native to crypto] prevail over incumbents in this new medium, as we have seen in other sectors during the introduction of the Internet.

Part of the problem is that everything crypto involves cutting edge technology – a far cry from the kind of kit the mainstays of mainstream finance are normally associated with. After years of consolidation and mergers, the technology behind the banking giants is creaky, fragmented and often obscure.

“Banks are not really technologically advanced companies. They just don’t have the digital infrastructure, ”said Diogo Monica, co-founder of Anchorage Digital, a bank and cryptocurrency technology provider.

Talent is also a problem because banks are just not as cool as they used to be. Recruiters say investment banks are forced to seek retired coders to run obscure and tangled computer systems because young people are no longer learning the “languages” needed to run some of Wall’s biggest institutions. Street.

“Banks definitely have a problem,” said a financial market recruiter, noting that younger coders enjoy better pay and more flexibility in crypto or tech-focused companies. And in many cases, the work is just more interesting.

All is not lost, however. The reputation and large customer base that they already will be invaluable, especially if investors more preservatives such as insurance companies are involved. Lending and borrowing could also open in the future.

“There will be a lot of counterparts who feel more comfortable with Goldman Sachs than with a native crypto firm,” said Christine Trent Parker, Financial Industry Group partner at law firm Reed Smith. And if their technology isn’t up to par, banks can still buy into.

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