The cryptocurrency business is racing to embrace regulation after years of criticising, resisting and avoiding it. In recent years, a rising number of cryptocurrency businesses have applied for national bank charters. The willingness of crypto businesses to become banks – previously criticised institutions of mainstream finance – may be perplexing to industry onlookers. However, it does make good business sense since many people are looking to find banking partners for crypto companies.
A Business Decision
Traditional retail banks profit from the interest rate differentials they charge for loans and customer funds management, requiring them to maintain strict capital reserve requirements. Custodian banks, on the other hand, make the majority of their money by charging fees for keeping assets and ensuring that they are protected from illegal activity. Cryptocurrency businesses are drawn to the latter type of bank.
Customers rarely have access to private keys at cryptocurrency exchanges, which also serve as custodians for retail investors. To have control of their own private keys, investors on these exchanges must withdraw their cryptocurrency to a private wallet.
Crypto Is An Expanding Industry
Businesses are entering an industry that already has a larger group of members. The demand for crypto is projected to rise in the future as more institutional investors enter the market. Nonetheless, some banks and financial services firms have just lately begun to develop and market their own blockchain-based services. Technology companies are also attempting to acquire a competitive advantage in the financial services business by utilising cryptocurrencies and similar instruments.
Despite all of this activity, many bank executives are unsure how to effectively use these currencies. They are also unsure what challenges they pose, how to manage transactions into and out of fiat currency, and what safeguards and guidelines to follow.
Fortunately, as the industry learns from past mistakes and regulators as well as financial leaders respond to the new reality, the way forward is becoming increasingly evident. This means that banks still have time to set themselves apart in this space and be the first to market in their respective regions. Financial institutions that educate themselves today and implement well-designed trials and services will be well-positioned to dominate the sector in their regions and possibly even in the global sector.
Fintech innovation is only in its infancy. However, cryptocurrencies will most certainly enter the mainstream financial industry over the next few years. As a result, new payment, investment, and savings methods will emerge and crypto businesses becoming crypto banks aren’t that far off.