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08 March 2021

You’ve got the power? Legacy banks aim high with new crypto offerings

You’ve got the power? Legacy banks aim high with new crypto offerings


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Reports that legacy banks like BNY Mellon and Deutsche Bank are becoming active in the cryptocurrency space, including through custody services, should come as welcome news for crypto investors.

Tobias Tenner, associate director and head of digitalization at the Association of German Banks, told Cointelegraph that the skyrocketing price of Bitcoin has captured German banks’ interest, as has a new regulatory framework implemented in January 2020 that cleared the way for banks to act as crypto custodians?

Pablo Agnese, lecturer in the department of economy and business organization at UIC Barcelona, told Cointelegraph: “I think they [the banks] are learning and trying to find their role in this ‘brave new world.’ History however proves that the traditional banking sector is not precisely one prone to substantial technological breakthroughs.”.

Bryan Routledge, associate professor of finance at Carnegie Mellon University, told Cointelegraph that crypto custody is not that different from what legacy banks are doing now and have been doing for years?

Large institutions recognize that crypto custody is a “complex and highly-specialized” endeavor that “revolves around securing a private cryptographic key required to sign transactions,” and many will choose to engage specialty firms like BitGo as subcustodians while wrapping the custody service in the bank’s brand, a process sometimes referred to as “white labeling.”.

“I think it is almost inevitable that global banks become major players in the crypto ecosystem as digital currencies become ever-more dominant in the wider global financial system,” said Green.

Tenner told Cointelegraph that global banks could be a big player in the business, provided they embrace euro-denominated crypto tokens — i.e., a “programmable Euro” — in accordance with the Association of German Banks’ 2020 position paper, though “It’s premature to foresee how strong a role banks could play.” For now, the crypto-asset business remains a niche product in bankers’ eyes, Tenner added.

With respect to the study, Kayla Izenman, research analyst at the Royal United Services Institute, told Cointelegraph: “It’s worth remembering that financial institutions are likely to view crypto as a risk in terms of compliance, but equally will see the opportunities from an investment perspective.”

When asked if traditional banks really understand the criminal risks in holding crypto, Izenman answered: “They’re likely to be much more cautious at the start of their crypto journey than virtual asset service providers originally were.” Her sense is that banks are well aware of the potential pitfalls: “In fact, the reason it took this long in the first place to get here is because they do know what they’re getting into, and are worried about it.”

Agnese told Cointelegraph: “I keep thinking that banks and cryptos are NOT compatible as the latter implies complete decentralization of ‘banking,’ and traditional banking is anything but decentralized.” Moreover, traditional banking is a historically protected sector that has always fought to maintain its privileges — though, “sooner or later banks will have to recycle themselves and offer something of value

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