Banks get cryptocurrency green light...what this means for you
Updated: Dec 30, 2020
As we contemplate the future of investing, we can’t help but feel that we are witnessing history in the making.
With so much happening in these unprecedented times, it's easy for headlines and events to get lost in the noise. We are here to help filter the financial news and bring your attention to things that we feel could be significant in your investment journey.
Among the flurry of events happening globally, there is one piece of financial news that has been lingering in our minds that we feel it is important to share with you.
Especially since more of you have been asking for information about cryptocurrency, this rather unassuming headline story has the potential to have a huge impact in the long run.
So here it is…the piece of news that has many investors feeling bullish (hopeful and optimistic) about cryptocurrency:
Banks in US Can Now Offer Crypto Custody Services, Regulator Says
What does this mean?
At face value perhaps this does not seem like a big deal, but it is.
For hundreds of years, banks have been safekeeping millions or even billions of dollars worth of their customers' assets, preventing them from getting lost or stolen. These banks are known as custodian banks as they take custody of a customer’s assets/securities such as stocks, bonds and commodities such as precious metals and fiat currency (cash), domestic and foreign.
Prior to recent news, only a handful of companies with specialized licenses could custody cryptocurrency for their customers. Due to a lack of regulatory clarity and general uncertainty about cryptocurrency, traditional banks played it safe and stayed away.
Until now. The regulatory green light has been given to banks by the Office of the Comptroller of the Currency (OCC), a US Treasury branch that serves to charter, regulate and supervise national banks.
To get idea of the sentiment within the OCC, here are some excerpts from their letter about the subject:
“The OCC recognizes that, as the financial markets become increasingly technological, there will likely be increasing need for banks and other service providers to leverage new technology and innovative ways to provide traditional services on behalf of customers”
“From safe-deposit boxes to virtual vaults, we must ensure banks can meet the financial services needs of their customers today," said Acting Comptroller of the Currency Brian P. Brooks. "This opinion clarifies that banks can continue satisfying their customers' needs for safeguarding their most valuable assets, which today for tens of millions of Americans includes cryptocurrency."
We applaud the forward thinking!
Why does this matter?
This news, and many other stories we are following, signals to us that there is a noticeable change of wind in the cryptocurrency climate. One that supports a movement towards more adoption of cryptocurrency into our portfolios.
For so long (since I got into cryptocurrency in 2014), I have been waiting for Bitcoin to move out of the fringe and into more mainstream recognition and adoption.
And while some of the original tenets of cryptocurrency encourage you to “be your own bank” and self custody your cryptocurrency, the fact is that many people still are attached to the convenience, security and habit of storing their assets in a bank.
Especially for the large institutional investors like hedge funds and family offices who rely on the safety of a bank to store and manage their wealth.
This relationship with banks has developed over centuries and for the wider population, it isn’t going away (acknowledging though that confidence in the economy and some banking practices does waver).
If traditional institutions get behind cryptocurrency and offer services around it, this could help onboard their clientele into cryptocurrency thus making more mainstream adoption of cryptocurrency more likely - which leads to a rise in investment demand in an emerging asset class, which could ultimately increase the value of that asset.
So, how long will it take? While we are excited about this news, we also have a realistic expectation about how long it will take for banks to be ready to custody crypto. They have to prepare for this new revenue stream and that requires building new skillsets and procedures. It takes a lot of work! Crypto and finance experts predict it could take a few years to be ready, unless the bank acquires an existing crypto custodian firm and quickly brings it into the fold. We are watching this space but meanwhile here's the main takeaway:
More formalized financial infrastructure is being developed around cryptocurrency.
More individuals and institutions are getting behind it.
Interesting considerations if you have cryptocurrency in your portfolio or if you have been thinking about investing in cryptocurrency.
Are you curious about cryptocurrency?
If so, we encourage you to learn about the new world of digital assets and currency. We feel that this emerging asset class is a worthy one to consider in your investment journey - so much so that we are creating an intro to bitcoin workshop that will fast track you over the crypto learning curve and give you the confidence to invest in bitcoin. We see cryptocurrency as an opportunity to participate in a significant part of our digital financial future.
Learn more about the Bitcoin 101 workshop here.
For further reading on the bank cryptocurrency custody story, you can read the Forbes article Bitcoin Meets Banking As U.S. Bank Regulator Permits Cryptocurrency Custody or explore another angle in this article Now that U.S. Banks Can Custody Crypto, Will They?