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Banking with Crypto: Where Will It Go Next?

This is a guest post written by Shannon Flynn, managing editor at ReHack.com.

Amid the market instability caused by COVID-19, a major shift seems to be taking place in the crypto industry.

After years of false starts and criticism from the banking sector and traditional financial institutions, new partnerships and legislation seem to suggest the industry may be on the verge of a large-scale crypto service adoption.

Here’s the current state of the crypto market, and how financial institutions are beginning to offer it in earnest.

The Current Health of the Crypto Market

Like other asset classes, crypto wasn’t immune to the crash caused by the coronavirus. In mid-March, as assets of all categories fell — even those typically more secure against market shocks, like gold — so too did major cryptocurrencies like Bitcoin and Ethereum. Prices for both dropped sharply, with Bitcoin’s market value nearly halved.

Crypto, however, was remarkably quick to bounce back, with prices recovering to near pre-coronavirus levels over the next two months. So far, crypto seems to have come out as one of the better-performing asset classes, recovering much faster than others.The disruption caused by COVID-19 seems to have been small enough that banks and major financial institutions are continuing with plans to offer crypto services.

JPMorgan Announces Partnership With Crypto Exchanges

One of the biggest announcements of the past few months has been the partnership between JPMorgan Chase and crypto exchanges Gemini and Coinbase. In May, the bank announced it would accept the exchanges as banking customers — making them their first clients from the cryptocurrency industry.

Coinbase is the largest U.S.-based cryptocurrency exchange. Gemini is less prominent but is notable in its moves to secure support from major institutions outside of crypto.

The partnership is big news for American cryptocurrency traders and firms, especially in light of JPMorgan CEO Jamie Dimon’s previous comments on bitcoin. In 2017, Dimon famously bashed the currency as a “fraud” and said he expected that global governments would take action against crypto.The partnership isn’t JPMorgan’s first foray into digital currency, though. In 2019, the bank introduced its own version, JPM Coin. Each coin represented one dollar stored in the bank and could be used to more quickly settle transactions between members.

While the move isn’t JPMorgan’s first experiment with digital currency, it is a sign that traditional financial institutions may be getting more comfortable with the idea of trading in crypto. Large banks have traditionally been fierce critics of cryptocurrency.

Concerns about the inefficiency of blockchain and the potential environmental impact of bitcoin may be enough to dissuade broader adoption. After all, bitcoin miners use up the same amount of energy as 6.8 million average U.S. households.

However, investors seem like they are becoming more interested in crypto. According to the Wall Street Journal, “average daily trading volume this year of CME’s bitcoin futures contract has risen 43%” compared to last year. Other crypto vehicles, like Grayscale Bitcoin Trust, have also seen similar upticks in trading volume.

Even if traditional financial institutions shy away from full crypto adoption, cryptocurrency banks in the U.S. may still become a possibility over the next few years. In June, Former Wall Street trader Caitlin Long secured $5 million in funding for a cryptocurrency bank, Avanti. That gave the institution enough cash to follow through on filing for a charter with the Wyoming Division of Banking. The bank currently plans to open for business in 2021.

Banks Around the World Consider Crypto Service

The trend toward cryptocurrency banking isn’t limited to the U.S. In Germany, more than 40 financial institutions declared their intent to offer crypto services under new legislation. Two of Switzerland’s largest banks have also launched digital asset-based transaction services.

Earlier this year, India’s Supreme Court overturned a Central Bank ruling that prohibited banks from providing services to traders and firms dealing in cryptocurrencies. While it had signaled it would challenge the decision, it instead issued formal guidance giving commercial banks in India the green light on providing banking services.

Following the court’s decision, CoinDCX — India’s largest crypto exchange, which received a major investment from Coinbase in early June — integrated bank account transfers. This allows customers to purchase and trade cryptocurrency using their bank accounts.

However, as in America, trust remains a significant barrier. Even with the prohibition on services for crypto traders lifted, few Indian banks have moved to seriously integrate crypto offerings.

The Future of Cryptocurrency Banks

Despite the major instability caused by the COVID-19 crisis, the cryptocurrency market has managed an impressive rebound and emerged as one of the best-performing asset classes so far.

At the same time, major institutions — including JPMorgan and several European banks — are moving ahead with new plans to offer crypto- and digital asset-based transactions. There’s reason to believe that banks may soon provide financial vehicles that make it easier for investors to purchase and trade bitcoin. It’s hard to know what the future of crypto banking will look like right now. For the moment, it’s all good news in spite of current market disruptions.

Shannon Flynn is a technology and culture writer with two+ years of experience writing about consumer trends and tech news.