The financial industry is still trying to find its way with digital assets.
Banks are starting to have a problem with the boom in cryptocurrencies, according to the «Financial Times», with clients and internal traders increasingly demanding digital asset services.
Compliance departments and senior management are feeling far less enthusiastic, even though they might have the feeling they need to do something in order not to fall too far behind. The trouble is that nobody knows what that something is.
Too Big to Ignore
There are a number of technical problems besides the potential loss of trust and reputation should markets crash again. Banks are not in a position to easily deal with digital assets promptly given they have to adhere to internal and external guidelines and regulations, much of which is still in its infancy. They also have to find capable staff and keep them. And what happens if the whole thing turns out to be some big fraud?
«The digital asset universe is too big to ignore. We believe that crypto-based digital assets could become an entirely new asset class», the Bank of America writes in its first research note on the subject.
Against Established Providers
Several large US banks have announced plans related to digital markets and many European traders are following them quietly. Commerzbank's research team in February sent an announcement explaining why their analysts were not covering bitcoin. The bank did not see «its task to comment or predict the price development of completely speculative assets». By September, they had a team responsible for digital assets.
«Crypto is expanding in traditional financial services», says David Kinitsky, head of US-based Kraken Bank, and one of those cited in the article. «Companies (in the crypto space) will dominate this new medium against established providers, as we saw happen in other sectors during the internet revolution.»
Often outdated and fragmented
While cryptocurrency purveyors use state-of-the-art technology, banking IT systems are often outdated, fragmented, and difficult to use. «Banks are not really tech companies. They simply don't have the digital infrastructure», says Diogo Monica, founder of Anchorage Digital, which provides bank and crypto tech services.
«The banks definitely have a problem», says a headhunter specialized in financial services. Young programmers are paid more in crypto or tech companies and they have more flexibility. And in many cases, the work is simply more interesting.
More Comfortable With Goldman Sachs
There is still hope. The reputation and clientele of established banks will come into play when more conservative investors, such as insurers, start to engage in the sector.
«There are going to be many business partners who simply feel more comfortable with Goldman Sachs than they do with a crypto company», says Christine Trent Parker, a partner at the Reed Smith law firm. And when they need technology, they can still buy it at any time.
