For a long time, cryptocurrency positioned itself as a potential alternative to the traditional banking system. By offering peer-to-peer digital payments, holders of Bitcoin and other cryptocurrencies could act as their own bank.
The truth, however, is that many people weren’t prepared to assume that responsibility — at least not at this early juncture. Additionally, some in the finance sector were initially hostile to the idea of cryptocurrencies and CEOs of leading banks voiced their stark skepticism.
Things have since changed quickly — and dramatically.
Recently, JP Morgan hired a Head of Crypto-Assets Strategy to seek out cryptocurrency related projects to take to market. Goldman Sachs has announced it will enter the Bitcoin futures trading market and has invested heavily in other crypto start-ups. Another major global bank, Barclays, is also eyeing its own entry into Bitcoin futures.
First banks ignored crypto assets. Then they derided it. Today, they’re making massive investments in the space and working with some of most high-profile crypto projects in the industry.
So what does this mean for the cryptocurrency market and its investors? Let’s take a closer look.
The Movement of Big Banks into the Cryptosphere
Even as little as two years ago, the notion of Wall Street entering the cryptocurrency market in force would have seemed far-fetched. While a few crypto projects such as Ripple aimed to use blockchain technology to make banking processes more efficient and less expensive, the idea of finance heavyweights getting involved seemed implausible. After all, cryptocurrency advocates believed the technology could one day replace the existing financial order.
After Bitcoin exploded into the public consciousness in 2017 — and the value of coins and tokens skyrocketed — the idea of institutional money entering the market suddenly seemed far less unlikely. Thanks to surging public interest, existing cryptocurrency exchanges strained to keep up with demand, opening up new market opportunities. After seeing the value of one Bitcoin rise from $1,000 to $20,000 in a single year, the clients of large financial firms began demanding access to these markets for themselves.
The first wave of Bitcoin futures from the CBOE and CME represented the first move by large exchanges to grant this access. Yet much bigger things are on the horizon. In addition to the moves outlined above from Goldman Sachs and JP Morgan, there have been other signs that financial institutions have major plans for crypto assets. For example:
- Bank of America announced at the 2018 World Economic Forum in Davos that it was making unrivaled investments in blockchain
- The listing of Ethereum futures is imminent
- Norway and other nations are considering the creation of central bank-issued cryptocurrencies
While these developments certainly indicate a rising wave of interest in cryptocurrencies from high finance, they likely represent just a small sample of things to come. The U.S. Securities and Exchange Commission is expected to provide regulatory guidance on whether coins and tokens are classified as securities and other key issues.
Once regulatory clarity is achieved, it could unleash a flood of institutional money that’s currently sitting on the sidelines — an event that some observers believe could spark the crypto market’s next major growth phase.
What This Means for the Average Investor
If you’re a cryptocurrency investor — or you’ve been interested in the market but haven’t found the right time to enter — these developments bear paying close attention to. Goldman Sachs, JPMorgan, Barclays, Bank of America, and others are making significant investments into the cryosphere and deploying precious resources. This is a signal that big banks feel confident that the crypto market is not only viable but growing and sustainable.
Retail investors should view these moves as a vote of confidence in the market. After all, banks are in the business of making money. Investors should also feel confident in their entry point. While Bitcoin became an object of popular fascination last year, the broader cryptocurrency market remains largely unknown to the average investor. The opportunity to enter the market before mass adoption occurs is still present.
In the future, it’s likely we’ll see cryptocurrencies and the banking sector continue to work together, rather than in opposition.
In the future, it’s likely we’ll see cryptocurrencies and the banking sector continue to work together, rather than in opposition. As mentioned, Ripple is working with banks and money transfer firms to improve their internal processes. Another high-profile crypto project, Stellar, is partnering with IBM to do the same thing. Stellar and IBM have reported meeting with central bankers from 20 nations with regard to introducing their own fiat cryptocurrency on a blockchain.
The work of projects such as Stellar and Ripple, and the continuing interest in cryptocurrency shown by the largest international banks, should both read as extremely positive developments for individual investors.
As the underlying technologies behind cryptocurrencies become more advanced — and the trading infrastructure to support investors is built out — the crypto market should move closer to reaching widespread adoption. Large banks are anticipating these developments and making the necessary investments to support them.
Investors that take note and act accordingly will be in the best possible position to benefit as the cryptocurrency landscape grows and matures.