Private banks remain cautious about cryptocurrency despite the crypto balloon now re-inflating. Bitcoin has now risen above the $6,000 price-mark. This is the latest in a sequence of resistance-breaking surges in its fledgling bull market.
Whether or not private banks see value in cryptocurrency, it certainly seems that their clients do.
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By GlobalDataResearch from the deVere Group finds that 68% of high-net-worth individuals (HNWIs) will have invested in cryptocurrency by 2022.
Does this suggest that private banks will soon have no choice but to embrace cryptocurrency to match client expectations?
Changing opinion of private banks to cryptocurrency
A survey by Fidelity Investments discovered that 22% of institutional investors already have some exposure to digital assets, with 47% seeing a place for such assets in their portfolios.
“We’ve seen a big shift in investor confidence in digital assets, as the entire ecosystem is strengthened with regulation and compliance requirements,” says Ahmed Ismail, co-founder of Hayvn, a cryptocurrency exchange targeting the institutional market.
“Institutional investors we have spoken to are interested in the asset class but can be reluctant to dip in due to bad practices and perceived risks like exchange heists and opaque fees.”
Iqbal Gandham, UK managing director at investment platform, eToro, adds: “The positive sentiment mirrors the conversations we are having with HNWIs and institutions on a daily basis.
“Until recently, crypto assets had piqued institutional investors’ curiosity – now they have their attention.
“HNWIs have clearly been leading the charge, and we are increasingly seeing large institutions such as pension funds and endowments taking the asset class seriously.”
What will keep private banks worried about cryptocurrency?
Cryptocurrency remains clouded by problems of security and stability, which private banks and other institutions will see as a barrier.
This was brought home most recently by the hack of crypto exchange Binance, resulting in the loss of $41m in Bitcoin.
Commentators acknowledge that events such as this are a concern, but do not believe they should put private banks off cryptocurrency.
“I wonder if the timing of the hack coupled with the recent Tether and Bitfinex fiasco will instill uncertainty among institutional investors and weaken the level of trust that finally seemed to be on the mend,” says Rémy Jacobson, CEO of blockchain investment platform, RealT.
“Yet, I remain bullish on bitcoin.
“The Binance hack is no different from any other market movement we’ve witnessed over the past few months and a recovery has already started.”
“The most interesting part about this recent surge is that Bitcoin and the crypto market cap, in general, are going up despite the news about Tether, Bitfinex and Binance,” says Vaibhav Kadikar, CEO of derivatives trading platform, CloseCross.
“This goes to demonstrate that the market is becoming increasingly more mature and might be the reassurance needed for more institutional money to flow into the market.”
What else does cryptocurrency need?
“The missing link is custody,” says Ahmed Ismail.
“For private banks to feel comfortable accessing the asset class, you need to provide the reassurances of the traditional capital markets structure. Institutional investors are entering the space faster than before and that is due to the entrance of compliant, regulated actors that investors trust.”
Hayvn are seeking to be one such regulated actor to provide this. Ismail and his co-founder, Chris Flinos, stress the importance of institutional money flowing into crypto to help calm the notorious price volatility.
“The asset class is no longer dominated by opportunists seeking high risk and high gain and the image of the ‘wild west’ is outdated,” Flinos adds.
“With the growing interest of more mature, institutional investors, the dramatic price fluctuations will settle, in turn bringing more confidence to the asset class.
“Yes it’s a process, but it starts with custody, security and regulation.”
What private banks already have a cryptocurrency offering?
The most high-profile entrant to the cryptocurrency world is arguably Julius Baer. The Swiss bank announced a partnership with fintech firm SEBA CRYPTO in February 2019, offering storage, transaction and investment solutions for digital assets.
This followed fellow Swiss private banks, Falcon and Vontobel, who introduced transfer and custody solutions in January.
