Major banks have an important role to play in helping traditional investors invest in global crypto markets and other digital assets, industry experts say.
Digital assets such as cryptocurrencies are part of an unregulated, decentralised and speculative market, but many mainstream financial institutions are now looking to commercial opportunities in the sector, particularly if they can get a first-mover advantage.
At a Singapore Fintech Festival event in November, Daniel Lee, head of business & listing at DBS Digital Exchange (DDEx), said statistics showed only a small percentage of global investors held cryptocurrencies.
“It’s more like 13 to 16 per cent of the world are probably holding cryptos,” Lee told the webinar on institutional opportunity in crypto markets. “So there’s a huge part of the world that are very, very naïve about cryptocurrencies, about how digital assets work, about how storage works.”
He said that’s where banks could help in introducing investors to digital currencies.
“The role that banks can play in this space is to allow a lot of people that are not native to this digital asset world to come into this space, because they trust the way banks do things, because of this trust that they have, they are willing to come into a bank to get their feet wet with digital assets,” Lee said.
“Financial institutions would be able to act as a bridge between this new world that’s coming up here, and the traditional world, and get them connected, so that these people would have an ability to get their feet wet and then grow into the space.”
Singapore has been positioning itself as a global financial technology centre for many years, and has attracted world-first fintechs and crypto players to the city-state under strong regulation by the Monetary Authority of Singapore (MAS).
The MAS has already issued several crypto licences in 2021, including to Singapore’s DBS Vickers – DBS Bank’s brokerage arm and a member of DBS Digital Exchange (DDEx) – to offer digital payment token services.
Around the world, despite the huge volatility of cryptocurrencies – this year’s record highs have been followed by some sizeable price crashes – more banks are actively looking at the crypto space to avoid being left behind. Some cite the biggest crypto risk as that of missing out on valuable investment and trading opportunities.
Goldman Sachs started trading in bitcoin-linked derivatives in May, and in July, JP Morgan moved to give its wealth management clients access to crypto funds, while Bank of America established a dedicated crypto research team.
In early November, the Commonwealth Bank of Australia (CBA) became the first major Australian bank to offer its customers the ability to directly buy, sell and hold crypto assets through its CommBank app.
CBA’s partnership with one of the world’s largest regulated crypto exchanges, Gemini, and leading blockchain analysis firm Chainalysis, came after the bank’s research found a large number of its customers want to access crypto assets as an investment class.
“We believe we can play an important role in crypto to address what’s clearly a growing customer need and provide capability, security and confidence in a crypto trading platform,” CBA CEO Matt Comyn said in a statement.
Ben Reeve, partner, financial services, at management consultancy Oliver Wyman, said banks will need secure infrastructure to cater to the broad range of digital assets in future.
“If we think about just the broader evolution in this space, including stablecoins, central bank digital currencies, I think all banks are going to at least need the capability to create some kind of secure wallet infrastructure for their retail and business customers for that broader set of digital assets, whatever you think about various protocol tokens as investment products,” Reeve told the Singapore Fintech Festival webinar.
“And if they aren’t doing that over the next couple of years, I think they’ll start to look like outliers.”
DBS Digital Exchange’s Lee said traditional financial institutions might not be able to move as fast as crypto native firms. However, when it comes to cryptocurrency activity, a big advantage for banks over a lot of fintechs is that banks still control the fiat channels – those of government-issued currencies which are not backed by a commodity.
“Your entry point is through fiat, and your exit point is always through a bank,” Lee said. “There are a lot of payments companies coming out now that can actually facilitate payments, but the reality is that this payment company is still relying on a bank to actually receive that deposit. So that is where the bank can play a role.”