How banks can play a role in the booming crypto space

Cryptocurrencies are enjoying an increase in mainstream popularity and acceptance. Once considered by serious investors to be too unstable to be trusted, or even essentially worthless, cryptocurrencies are being favored by governments and financial institutions as they seek to explore the world of payments and transactions beyond the traditional banking system. 

There are many driving factors behind this shift from untouchable status to legitimacy . On the one hand, in general, cryptocurrencies, especially the leading currency Bitcoin , are pandemic. With the economy getting into trouble in early 2020, predictions that the era of Bitcoin as a safe investment haven has come seems groundless, as its value has plummeted along with the value of other assets and the market. It then bounced back at a much faster rate than ordinary currencies and remained fairly stable, getting rid of much of its reputation for volatility along the way. 

With this stable and successful stage, people have gained more awareness of the advantages of cryptocurrency, rather than risk takers and early adopters who have been its main supporters so far. Ordinary citizens are starting to buy it, especially in developing regions where traditional banking is usually unavailable or untrusted, such as Africa, Asia, and South America. Central banks from Brazil to South Africa have recognized its feasibility. 

As far as the regulator is concerned, they have moved from treating it with the greatest possible suspicion to trying to bring it into their jurisdiction in some way. An example of this is the adoption of a digital finance package by the European Commission by improving its legislative position on encrypted assets and digital flexibility. FCA is talking about similar things. For those things that have been designed to exceed the scope of supervision, stricter rules may be about to be introduced, but this may only be a sign of wider acceptance.

One thing is certain: as the gap between cryptocurrency supporters and opponents narrows, and as its popularity expands into new areas, traditional financial institutions need to think carefully. Do they continue to insist that cryptocurrency poses a threat to the traditional banking sector and the status quo of the capital market? Or have they found a way to embrace it and profit from it, taking advantage of their unique advantages in the process?  

Let’s start with the question of why banks might be interested in embracing encryption. If cryptocurrencies have had a good time during the COVID, then banks have not. Although they may have enjoyed the post-coronavirus M&A boom and record revenue, this is not considered a sustainable outlook. The capital ratio has fallen and the threat to solvency is higher than at any time since 2008. Some people say that the impact of the new coronavirus will actually exceed the catastrophic impact of that epoch-making collapse in the long run. Interest rates are still sluggish. slow growth. The future is not particularly optimistic, and new ideas are needed.

Banks are actively advancing the digital transformation of their processes and structures, partly in response to this worrying situation. A positive stance on cryptocurrency should be seen as very consistent with this driving force, using some of the results that have been achieved in areas such as digital resilience, blockchain and GRID, as well as the deployment of artificial intelligence, machine learning, and advanced analytics to improve customers Journey and defeat the threat of supporting money laundering. 

Banks’ huge investments in digital technology and capabilities provide them with an ideal set of capabilities that can be extended to new markets and product areas that were previously considered too risky and difficult to track. Encryption is such a market. The trick is to find a way to participate in this new market while maintaining their competitive advantage over disruptive digital competitors in areas such as security, compliance, risk analysis, scale, experience, and reputation.

Many banks have explored the digital twin as a way to road-test innovative ideas. It seems to be a good tool to explore the opportunities offered by cryptocurrencies without increasing the existing risk profile. Using the digital twin of their business can enable institutions to demonstrate to central banks and regulators the losses or gains they and their customers may suffer in a variety of encryption scenarios. For example, the advantages of tether encryption can be demonstrated to show how to control volatility. Banks can safely create and test a set of encryption products and present them as so-called institutional DeFi, in other words, blockchain-based financial products tailored for institutions subject to strict compliance rules.

Digital twins allow them to circle their own market risks, while allowing them to show how their traditional advantages can be used in the new digital world. They have proven KYC knowledge, as well as expertise and experience in handling AML and fraud. In fact, traditional banks may argue that they are more capable than anyone to develop and provide secure and effective encryption solutions. 

For banks, now is the best time to explore this exciting opportunity-it is best to work with another party to bring analytics, digital twins, blockchain, algorithmic trading, and financial services innovation to that party record. Act now before your competitors, instead of waiting until they are left behind after the success of other people’s cryptocurrencies.

Posted by:CoinYuppie,Reprinted with attribution to:
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