For many years, bitcoin and other cryptocurrencies remained a fringe movement, generally unknown to those outside the immediate community. In 2010, a year after its invention, one bitcoin was never worth more than $0.50, but the unprecedented attention that cryptocurrencies and blockchain have received in the last two years has led to sharp price spikes, forcing ordinary consumers, businesses and institutions across a wide range of industries to sit up and take notice.
Not all of the reactions have been positive. A prime example was in September last year, as we were rapidly approaching the height of the crypto-craze, when JP Morgan (JPM) CEO Jamie Dimon heavily criticised Bitcoin, labelling it a “fraud”. But, interestingly enough, less than four months later he admitted the bank was looking into the space.
The reactions of some banks may mirror this change of heart after initial opposition. In the past six months, as cryptocurrency markets have stabilised, there has been a significant movement amongst banks and fintech companies to integrate cryptocurrencies and the blockchain into their existing services. Despite Dimon’s initial anti-Bitcoin stance, JPM is exploring solutions with both Ethereum and Zcash. As well as this, the American investment banking giant has recently announced a new role – head of crypto-assets strategy, hiring Oliver Harris, previously head of their in-house fintech incubator, to help search out promising cryptocurrency projects to develop.
In the UK, Barclays has been a frontrunner for cryptocurrency adoption. In March, the bank announced that one of the biggest cryptocurrency exchanges, Coinbase, had opened an account with them. This took place shortly after Coinbase were granted their e-money license in the UK, obtaining access to the Faster Payments Scheme. With the initial hype phase over, we may see more banks viewing cryptocurrencies as an opportunity rather than a threat.
This gradual shift from the defensive to opportunist stance is further underlined by a number of countries battling it out to become a hub for cryptocurrencies and blockchain technology. Notably, Estonia has attracted substantial attention for its proposal to issue a government-backed cryptocurrency - Estcoin - which would most likely be integrated with their existing innovative e-Residency ID program. Interestingly, Estonia has issued a number of e-money licenses to cryptocurrency-based companies, and blockchain is already implemented into their existing infrastructure for security and legislative registries. Likewise, Malta, Singapore and Dubai have made considerable efforts to establish themselves as key players in the spaces, hoping to attract a share of the investment still being ploughed in.
We can also expect the challenger banks to move fast on cryptocurrencies. Revolut has been offering their customers access to Bitcoin trading for over six months now, and it seems to have had enough popular demand that the challenger bank decided to add Ripple and Bitcoin Cash into the mix last month. We can expect more challengers and fintechs to follow suit, and with their reputation for rapid delivery of new solutions, traditional banks will need to pick up the pace if they don’t want to get left behind on crypocurrencies.
When banks consider how to add cryptocurrency features to their systems, in-house development looks time and cost intensive. And as with other areas requiring rapid innovation to keep up with the fintech world, there is a major shortage of people with the right skills throughout the software development chain.
Crypto-enthusiasts can feel a sense of satisfaction in seeing that traditional banks are finally taking cryptocurrencies and blockchain seriously. Both the cryptocurrency and wider DLT market are now worth billions and have promising futures.
With the technology and business applications starting to emerge from early hype into more mainstream adoption and productivity, it’s now a question of which banks will move fast – and which will be left behind - in the sprint towards crypto integration.