The emergence of crypto-assets within traditional banks: what’s at stake?

According to the Institut National de la Consommation (INC), crypto-assets or crypto-currencies represent “virtual assets stored on an electronic medium enabling a community of users accepting them as payment to carry out transactions, without having to resort to legal tender”.

Among the best-known crypto-currencies are Bitcoin, Ethereum, Ripple and Litecoin.

Cryptoassets are growing considerably. In fact, according to data from Coingecko, a site specializing in tracking over 10,000 crypto-currencies, the total capitalization of crypto-currencies exceeded $3 trillion at the end of November 2021.

Faced with this exponential development, banks couldn’t remain indifferent to the crypto-currency phenomenon.

1. Late and difficult adoption of crypto-assets by banks

Initially, banks were skeptical about crypto-assets.

Indeed, there were several reasons for this reluctance on the part of banks towards the crypto-asset market:

• The novelty of the phenomenon Crypto-currencies: when crypto-currencies first appeared on the scene, the field was completely unknown to banking institutions, which had no training in the subject. This made it difficult for banks to grasp the stakes and risks associated with crypto-currencies, and dampened their interest in the sector.
• The volatility of crypto-assets Virtual currencies were considered too risky due to their volatility.

Today, these arguments are no longer relevant, and the general public’s interest in crypto-assets has prompted banks to take an interest in this phenomenon by offering their customers this type of financial product.

2. Opportunities for banks faced with the crypto-asset phenomenon

As a result, many banks have entered the world of crypto-assets.

Banks now believe that cryptocurrency will become a mainstream investment vehicle within a few years, on a par with stocks or bonds. By offering this innovative and attractive service, banks will then be able to meet a growing demand from their customers.

Many banking institutions have set up partnerships with companies specializing in cryptos, such as Lydia, which has teamed up with the BitPanda platform.

US banks Morgan Stanley and JP Morgan Chase are now offering Bitcoin funds to their customers.

Elsewhere in the world, other banks are also getting into the crypto-asset market:

• German neobank N26 is developing a service for exchanging virtual currencies;
• Boursorama allows its customers to link their accounts on crypto exchange platforms, such as Coinbase, Binance and Kraken ;
• Forge, the blockchain subsidiary of Société Générale, has started offering loans in DAI (a decentralized stablecoin running on Ethereum (ETH) that strives to maintain a price of $1.00 USD).

In addition, more and more traditional banks are now accepting crypto-currencies, such as Crédit Lyonnais and Crédit Mutuel, although these banks are limiting exchanges to regulated platforms complying with protocols linked to the fight against money laundering and the financing of terrorism.

To take things a step further, some establishments specializing in crypto-currency exchange call themselves “crypto-banks”. Such is the case of Coinhouse, self-proclaimed “Europe’s first cryptobank” last January, when it raised €15 million in funding.

This ” corresponds to a new business, that of being a player capable of offering services that we know from banking, but which apply specifically to digital assets “, indicated Nicolas Louvet, Coinhouse’s CEO, in an Agefi podcast.

3. Towards regulation of crypto-assets

The considerable development of crypto-assets is a cause for concern for the Banque de France, not least because of the virtual absence of regulations governing this type of currency.

” Whether we’re talking about digital currencies or payments, we in Europe must be ready to act as quickly as necessary, or run the risk of eroding our monetary sovereignty,” announced François Villeroy de Galhau, Governor of the Banque de France, at Paris Europlace’s annual financial conference.

The Banque de France hopes that Europe will introduce clear regulations for these digital currencies as soon as possible.

The European Central Bank has launched a two-year investigation phase into the creation of a new European currency: the digital euro. The aim is to offer European citizens a new, reliable and secure digital currency by 2025.

One of the aims of this investigation will be to determine the role of banks in the distribution of this new currency, in order to establish cooperation with banking institutions.

As Fabio Panetta, member of the Executive Board of the European Central Bank, points out, ” the aim is not to disintermediate the role of banks “.