Once infamously hailed as a boom-and-bust story that would end worse than the tulip mania of the 17th century, the view on cryptocurrencies has quietly broken consensus amongst global banks.
Earlier this month, ex-Fed chair and U.S. Treasury secretary nominee Janet Yellen called bitcoin «highly speculative» and «not a stable store of value», adding that it was used within transactions mainly for «illicit financing». European Central Bank president Christian Lagarde echoed Yellen's thoughts a few days later, rebuking claims of its currency status.
«Terribly sorry but this is an asset and it’s a highly speculative asset, which has conducted some funny business and some interesting and totally reprehensible money-laundering activity,» Lagarde said, calling for regulation at the global level through G7 or G20 nations.
But what say the global banks?
«Absolutely Inevitable»
In December last year, Standard Chartered’s Bill Winters made his mark as perhaps the most bullish global banking chief by calling the adoption of digital currencies as «absolutely inevitable».
According to Winters in a «CNBC» report, some of the potential applications from digital currencies – such as trading verified, standardized and monitored securities in the voluntary carbon market – «can’t be replicated by a fiat currency, or, most likely, by a central bank digital currency any time soon».
Winter’s views were not mere comments as the British lender subsequently followed up with the launch of cryptocurrency custodian services in a partnership with Northern Trust. The platform focuses on institutional investors and supports bitcoin, bitcoin cash and ethereum.
Experimental Stage
DBS joins Standard Chartered as another lender with strong Southeast Asia footprints and a more open stance. Although DBS chief investment officer (CIO) Hou Wey Fook said the bank deemed cryptocurrencies a speculative asset «as long as it is not endorsed by central banks and governments», he said he did not disapprove of investors dipping in with small investments.
«If clients are interested because they see the huge run up, I say: 'why not have some as a satellite play, and buy and forget about it’,» said Hou, adding that it exhibited similar alternative characteristics as gold and that recent bitcoin price movements have a direct impact on the precious metal.
DBS also recently rolled out crypto trading capabilities with a digital exchange focused on institutional and accredited investors. According to the bank, the Singapore Exchange will take a 10 percent stake in the separate subsidiary.
Wait and See
Elsewhere, banks that are still taking a wait-and-see approach but share the view that greater adoption could occur should certain prerequisites be fulfilled. UBS's APAC president Edmund Koh, for example, recently said that crypto entrance into the mainstream could be accelerated with more tokenization of financial assets.
«If you look at the exchanges today, some of the assets are really more physical. I think some of those could potentially be, in time to come, tokenized,» he said, underlining the need to address regulatory risks such as money laundering. «And the settlement of these tokenized assets could legally be done through crypto.»
Smart or Stupid Money?
Unlike the last boom which was backed mostly by retail support, the current rally contains significant institutional investor participation.
Greyscale’s Bitcoin Trust was the most notable player with assets under management surging 900 percent to $20.2 billion after kicking off last year with $2 billion with inflows from hedge funds, endowment and pension funds.
More recently, Blackrock added bitcoin-linked futures as an investable asset in two of its funds, according to a company filing.
Digital Currency Rivals
Concurrently, the upcoming launch of central bank digital currencies (CBDCs) is underway and banks are also spotlighting them as a future alternative for physical cash.
In addition to lacking regulatory and political support, banks are underlining worries about issues like public trust in the decentralized digital currencies. One recently headlined concern is the risk of forgotten passwords – a problem which has made around one-fifth of the bitcoin supply to be inaccessible, according to online platform Chainalysis.
«Once the central banks come up with their central bank digital currencies (CBDC), maybe people want to look into them,» said global CIO of Deutsche Bank's international wealth arm Christian Nolting in a virtual roundtable this week. «I think there will be coexistence of [CBDCs and cryptocurrencies] but I think, from a trust perspective, people would look for the CBDC as a very interesting point.