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How and Why Banks Are Adding Cryptocurrency Investments Capabilities to Their Clients

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Cryptocurrencies are starting to see the mainstream appeal and acceptance they deserve. 

Many banks are adding cryptocurrency investment capabilities for their clients, and this has been in the making for quite a while now.

The Timeline of Crypto-Acceptance

On February 10, 2021, MasterCard announced that it will be bringing cryptocurrencies onto its network. 

On July 27, they announced a new Start Path global startup engagement program which became dedicated to the support of fast-growing digital assets, blockchain, and cryptocurrency companies. 

This indicates that cryptocurrencies are becoming increasingly accepted as a form of payment.

It marked  another step in the process of legitimizing cryptocurrencies as well as the technologies behind them.

On March 29, Visa announced that it will allow the use of the cryptocurrency USD Coin on its payment network, which was at the time yet another indicator of a growing acceptance of digital currencies within the mainstream financial industry. 

Visa launched the pilot program with payment and crypto platform Crypto.com with the intention to start offering the option for more partners to join over time.

Visa started to directly accept payments in USD Coin, which is a stablecoin tied to the U.S. dollar with 1 USD Coin being worth $1.  

The company took the extra step and announced plans to support new central digital bank currencies when they become available in the future.

On June 30, the announcement was that 650 U.S. banks will be able to offer Bitcoin purchases to 24 million customers. 

They will be able to offer their clients cryptocurrency trading through mobile applications that are built by the payment providers in question.

On July 19, JPMorgan announced that it would give all wealthy clients access to crypto funds.

JPMorgan Chase & Co also announced that it would allow all of the wealth management clients access to cryptocurrency funds.

The bank told its financial advisers in a memo to take buy and sell orders from their wealth management clients for five cryptocurrency products starting from July 19.

Why Banks Were Cautious of Cryptocurrencies 

One of the reasons why banks were cautious was due to the decentralized nature of cryptocurrencies. 

Crypto assets were created as an alternative to the traditional banking infrastructure we are all used to seeing in banks and are used to, and they do not need an intermediary and as such, threaten the capacity of a centralized government, bank, or even an agency. 

Another reason is the Anti Money Laundering (AML) and Know Your Customer (KYC) concerns as cryptocurrencies allow for peer-to-peer transactions without a regulatory intermediary. 

This allows for a quick and seamless transfer of funds without any trading fees; however, this worries banks who are concerned about the lack of AML and KYC regulations surrounding them. 

Then we also have volatility, which means that the price of cryptocurrencies has gone up and down significantly, without warning several times throughout their life spans. 

This is a direct result of the market size, liquidity, and the number of participants, and banks saw this as a risk due to the fact that the price has not been stable.

Why Financial Institutions See Cryptocurrencies as an Opportunity

One of the main reasons why banks and financial institutions of all kinds see cryptocurrencies as an opportunity is due to the fact that they do not want to be left behind. 

They need to find a way to embrace the new technology and treat it in a friendly fashion in order to take advantage of all of the benefits it provides from a financial standpoint. 

In July, the Options Clearing Corporation (OCC) stated that banks, as well as savings associations, can provide crypto custody services for customers.

This includes the opportunity to hold unique cryptographic keys which are associated with the access of their private wallets.

Then you have easy onboarding, as banks could bring new as well as less experienced investors into the cryptocurrency space through the development of tools that would facilitate the adoption of cryptocurrencies by their customers.

Cryptocurrency transactions and KYC and AML Regulations

In 2019, the Financial Crimes Enforcement Networks (FinCEN) determined that any cryptocurrency transaction as well as custody services that are conducted through crypto entities that are considered money have to abide by KYC and AML regulations.

This is intended to help in the process of avoiding malicious transactions and illegal activities.

Blockchain technology has the potential to automate KYC and AML verification and allow for a streamlined view of shared data between banks as well as loan officers.

Furthermore, banks have the opportunity to mitigate the security concerns that surround cryptocurrency holders, as the hacking of a personal wallet or even exchange has been the main cause of concerns for many traders. 

Some of the most well-established banks out there have the potential of securing digital currencies from theft or hacks while putting their clients at ease. 

Banks can even utilize the public blockchains, as well as stablecoins, to speed up the payment processes they have. 

Blockchain technology allows for much quicker as well as less expensive alternative processing transactions.

Alongside all of that, when entering into an agreement through the usage of smart contracts, there is a reduced level of trust that is required from parties due to the fact that the success of the transactions relies on computer code and not the behavior of the specific individuals. 

Banks could become the reliable third party that utilises smart contracts for commercial loans, mortgages, and other transactions. 

Learn more about cryptocurrencies and how we can support your business at EstonianCryptoLicenses.

About the author, Estonian Crypto Licenses

He’s the founder and managing director of FinTech Legal Center, which provides pan-European legal, compliance, accounting, Hr and strategy advice to Fintech businesses. His customers say he can make extremely complicated details easy for business people to understand and digest. Further, according to them, he’s the calm in the storm.

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About Estonian Crypto Licenses

Estonian Crypto Licenses is a trading name of TechIuris OÜ, a company based in Tallinn, Estonia and specialised in legal and compliance solutions for European FinTech companies. We are a fully licensed company, and EVEA and e-Residency marketplace members. Here on our blog, we share the latest news on topics such as NFTs, cryptocurrencies, blockchain and much more.

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