Banks Start Engaging In Cryptocurrencies

In News

Even banks are gearing up to join the crypto world.

The bankers are coming to the crypto industry according to a recently released survey result. In sharp contrast to their supposed conservative approach and abhorrence to anything considered as “risky,” the appeal of the potential profits from investing in these digital currencies proved too much to resist as 20 percent of five financial institutions are already planning to enter the crypto scene.

Last year’s explosive growth coupled with the recent signs of recovery of the market, the cryptocurrency industry is going to get more interesting as the market will have a more diverse set of players this year. Encourage by the spectacular gains made by last year’s mostly individual investors, the predicted rally this year will be driven in part by fresh funds from the cash-rich institutional investors that are predicted to arrive in droves. But the more surprising part is that the bankers will be coming to play as well.

1 in 5 Financial Institutions Wants A Piece OF The Action

In a recent survey by Thomson Reuters, 1 in 5 of the financial institutions revealed that they have intentions to engage in crypto trading in the next 12 months. The 400 respondents of the survey came from clients of the Thomson Reuters Corp TRI.O platforms. These financial institutions are composed of trading desks of the industry’s largest banks, hedge funds, and large asset managers.

Since last year’s explosive rise in cryptocurrency prices showed the world the astonishing earning potential in the digital currency markets. Last January’s massive market correction might have been costly to crypto traders, but it also presented a rare opportunity for new traders to enter the market at a time when prices are more affordable.

At the moment, banks are trying to see if there is substantial interest from clients to justify their entry into the crypto market. However, the volatility of crypto prices remains a concern as well as the uncertainty on whether or not the market will be able to sustain the recent rally.

Is Investing In Crypto Slowly Becoming Acceptable In Banking Circles?

What the survey’s result seems to suggest is that even financial institutions are slowly changing their stance as far as cryptocurrency investment is concerned, according to Hacked. Previously, it was viewed as acceptable to invest in the blockchain technology powering these tokens but investing in the digital coins themselves was questionable. But the survey’s result seems to imply that cryptocurrencies are slowly being viewed as a new breed of assets.

What hindered banks from diving into digital assets in the past is the belief that cryptocurrencies have no intrinsic value. However, this value is already challenged by researchers at the Federal Reserve Bank of St. Louis who countered this line of thinking with the argument that “state monopoly currencies, such as the U.S. dollar, the euro, and the Swiss franc, have no intrinsic value either.”

In other words, national currencies such as the dollar have no intrinsic value as well since they are no longer backed by gold or silver like they were in the past. If this is the case, why is it okay to invest in forex but not in crypto then?

Another argument against cryptos is their volatile prices. It is true that Bitcoin’s price has been wildly erratic lately, but this volatility is present in national currencies as well. An extreme example is Zimbabwe’s currency which was “inflated out of existence” a few years back. In addition, Bitcoin’s extreme volatility is seen as a short-term occurrence which happens when a market is still small and new. 

“This is why decentralized cryptocurrencies are a welcome addition to the existing currency system,” the researchers argue. In addition, they believe that Bitcoin “could over time assume a similar role as gold.”


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