Even the traditional banking luddites are now embracing digital assets
The minds and policies of some of the world’s most traditional financial instutions have been the subject of U-turns when it comes to their stance on digital assets and decentralized financial services and products.
Whilst it has been a clear, if steady and long drawn out process, many of the large investment banks in North America began to engage teams of research and development professionals in building blockchain projects six to seven years ago, however in Europe, there has been a significantly different approach, that being to resist any involvement in cryptocurrency or development of in-house blockchain technology.
This clear dichotomy between American and European institutions may appear to show those on the Eastern side of the Atlantic to be somewhat behind the avantgarde nature of firms such as Goldman Sachs and Merrill Lynch who have both been early adopters of blockchain development.
Now, there is a sudden change as Commerzbank, one of Germany’s largest financial instutions, has gone back on its official stance and has established a division which is now to work on digital assets.
Commerzbank, along with its host nation, is notoriously conservative and has been very disparaging in the past, having publicly stated as recently as February this year that it does not consider it to be its responsibility to comment on the price development of purely speculative investments or to predict it, and had no plans at all to go down the digital asset route, yet here we are less than a year later and the company is looking at things quite differently.
Not only are the advantages of blockchain related technology far too great for large financial institutions to ignore, but the participation in a very exciting and highly volatile market that is now equal to almost $2 trillion in terms of total size is continually increasing, and it is where the modern, fast-moving innovation is.
Whilst many traditional asset classes and their associated methods of connecting traders and investors to markets are not attracting new investment, cryptocurrency and decentralized finance is where a large proportion of the new development is concentrated, and is also an exciting and immediate market with a healthy degree of volatility, unlike traditional asset classes which have been stagnant and based on low volatility markets for many years.
Perhaps most interestingly, the large banks which have to rely on legacy technology for their dealing platforms, mainly because it is far too risky for them to build new dealing platforms and replace old ones in case of errors, as outages and errors would cause entire global markets to have outages, or even worse, bring down banks in the way that non-bank market maker KCG was brought down in 2012 when a developer connected a test algorithm to a production server, costing the company $460 million and almost putting it out of business.
Tier 1 banks have a duty to be somewhat conservative, however that level of adherence to old fashioned platforms means that any move into cryptocurrency would have to be done via a totally different division on totally new technology, something banks aren’t adept at doing, or would be subject to a very long process of testing, meaning that their development cycle would be too slow to keep up with the rapid evolution of cryptocurrency and decentralized finance technology.
So quick are the protocols to evolve, for example we are now looking at a highly advanced Uniswap V3, and so engaged are the cryptocurrency founders and leaders in developing their digital tokens and assets beyond the realms of being just decentralized alternatives to fiat currency – look at smart contracts for example, and the imminent Ethereum 2.0 – that any large institution with heavy due diligence and long sign-off policies would be constantly left behind even if they really wanted to try to rival the fintech and crypto developers.
Therefore, it is clear that leadership in providing a fully comprehensive, multi-asset venue for all points of entry and participation in all areas of digital asset storage and transaction, as well as blockchain projects and token-related investment, specialist regulated cryptocurrency platforms such as CoinMetro are the outriders, leading the way in bringing all areas of crypto onto one venue.
Taking part in the development of cryptocurrency tokens and blockchain projects is also the preserve of specialist cryptocurrency exchanges, and given that CoinMetro plans to start a Mutilateral Trading Facility (MTF) within the next year, it is clear that CoinMetro’s existing regulated payment facility, fiat on and off ramp and regulated crypto exchange would combine with the MTF to challenge digital banks.
Given that the corporate investment managers are now heading big into cryptocurrency, and small to medium sized enterprises across the world are also embracing decentralized finance, CoinMetro is able to provide business accounts in which treasury can be held in crypto assets, something the Tier 1 banks are not yet offering, if they ever will.
What is clear is that the large institutions are well aware that digital assets are the future, and that the market is diverse and large enough for them not to want to miss out, however the regulated specialist cryptocurrency exchanges are still leading the way – it was our industry which sparked the banks’ interest in the first place, not the other way round.