Unlocking the cryptocurrency potential: How Banks can thrive in the digital age?

The financial world was in turmoil as inflation and interest rate hikes took their toll on companies; but that wasn't the end of the troubles. Banks with exposure to risky assets such as cryptocurrency and tech startups faced the brunt of the impact. Silvergate Bank was the first to suffer, followed by Silicon Valley Bank, Signature Bank, the First Republic Bank and the mighty Credit Suisse. These banks, primarily in the US and Europe, were hit by regulatory mismanagement, excessive risk-taking, and various scandals. All in a matter of just 10 days.

The rescue effort was no small feat. The US Federal Reserve provided over $400 billion in direct support. It's safe to say that the financial world was shaken to its core. However, billions of dollars of investors' money still lie in limbo.

The potential of decentralised banking

A potential solution to avoid such a situation and protect customers' funds could be decentralised banking. Decentralised banking manages the activities of a traditional bank. But it is not necessary to authenticate the occurrence of these transactions through an intermediary, such as a financial institution. Instead, it makes use of blockchain technology. Thus investors' money is safe no matter the fate of the bank.

Banking has taken to speed to adopt cryptocurrency in their services. For example, JPMorgan Chase, for instance, has launched its cryptocurrency called JPM Coin, primarily to facilitate faster transaction settlements and funds transfers among its clients. Also, Morgan Stanley has offered investment products based on blockchain technology since 2018.

Despite these activites, many financial officials remain unsure about how to best use digital currencies and how to avoid the pitfalls that come with them.

How can banks embrace cryptocurrency and blockchain?

As banks continue to explore the vast potential of the cryptocurrency market, several possibilities and business use cases have emerged.

Funding for start-ups

In this domain, banks can serve as facilitators for startups by offering an alternative means of funding through ICOs, IDOs, and IEOs. These coin offerings can bypass traditional capital markets, providing an innovative way for new ventures to secure the necessary funds to get off the ground. Additionally, banks can harness the power of distributed-ledger technologies (DLTs) to streamline their operations and enhance security.

Payments solution

Banks could also explore using cryptocurrency as a secure and efficient payment method, and integrating it with established payment platforms is a promising approach. This gives people more choices and control when transferring money, allowing them to choose between traditional currencies or digital assets. Individuals can conveniently access cryptocurrencies for future transactions or add them to their investment portfolios by storing them in a pooled wallet. This option offers greater flexibility and presents new opportunities for those seeking to explore the world of digital assets.

Crypto trading

Currency-trading services have become popular among banks that seek to provide their clients with a diverse suite of investment options. The rise of cryptocurrencies has further propelled banks to adopt digital payments and transactions for their customers.

Regulations

Regulating the use of cryptocurrency is crucial as it continues to gain popularity. Such regulations are essential to protect consumers' financial assets and create a safer market overall. Regulation can make the industry more attractive to investors by instilling greater confidence in traders. Moreover, it can facilitate the wider adoption of crypto services, which is vital for making the everyday use of cryptocurrency a norm.

The way forward

Banks have a huge opportunity to use digital assets and technology as an enabler of new business offerings and services, helping ensure they remain at the forefront of the financial revolution. With solutions like Scallop, neobanking ecosystems can provide banks with a reliable platform for trading and investing in digital assets. This will help them retain ownership of their customer relationships, build long-lasting loyalty, and bring value to the market. Additionally, this ecosystem provides customers with a haven for trading regardless of their level of expertise. Get the Scallop App and take your first step towards that future today.

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