Big Banks Will Embrace Crypto If They Ever Show Up

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In Samuel Becketts Waiting for Godot, the main characters spend the entire play anticipating the arrival of a character with that name. The characters and the audience wait again and again, but, in the end, Godot never arrives. The plot of the piece may sound familiar to crypto players, who have been predicting for years that banks and other financial institutions will transform their industry. That pivotal moment is always just around the corner but never happens.

I recently spoke with David Mercer, CEO of LMAX Group, a London-based company that provides forex, crypto and other asset trading services to major institutions around the world. The company is also doing good business on its crypto exchange, LMAX Digital, which caters to institutional traders who want to make large, discreet trades. So far, however, the big banks have not caught on in any meaningful way.

I have 35 of the top 40 banks trading fiat. Back in 2018, I assumed they would all be in crypto by now, but what happened is that the banks won’t actually come, Mercer notes.

He says it’s not due to a lack of willpower or knowledge. Mercer notes that banks have invested billions in blockchain tools, including the JPMorgans Ethereum-based Onyx service, and want to trade Bitcoin and other major cryptos like they would any other asset. But Mercer points to Securities and Exchange Commission accounting guidelines that prevent it.

Namely, if a bank like JPMorgan wants to hold crypto assets on behalf of its clients, it must carry them on its balance sheet as liabilities, a different rule than for other types of client assets in its custody. which do not appear on the balance sheet at all. . The upshot is that since banks must hold cash reserves to offset liabilities, SEC rules make it too capital-intensive to offer crypto custodian services.

The SEC reportedly never consulted banks about accounting advice, even though a number of them were preparing to offer crypto services to their clients. This seems to provide even more evidence that the US has for crypto as a whole.

It’s not banks saying no to crypto, it’s US regulators, Mercer says. The United States is normally synonymous with innovation in capital markets, but it is somewhat alone when it comes to crypto.

Meanwhile, LMAX Digital is still doing half a billion dollars in institutional crypto trades per day, up from $2 billion per day at the peak of the 2021 bull market. And Mercer thinks Godot, in the form of crypto banks -trading, will eventually happen but not this year.

Jeff John [email protected]@jeffjohnroberts

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