Wall Street’s major banks are reportedly in talks about expanding into the crypto space, according to sources cited by Reuters. While discussions are ongoing, the initial steps towards crypto adoption are expected to be cautious.
Amid a pro-crypto US government and evolving regulatory environment, large financial institutions are contemplating pilot programs, partnerships, and limited crypto trading. However, these banks are treading carefully and are hesitant to dive headfirst into the world of digital assets.
The reluctance of banks to heavily venture into crypto is due to concerns about potential regulatory changes that could impact their operations. Instead, these institutions are waiting to see how other major banks navigate the crypto landscape before making significant moves of their own.
Despite their cautious approach, traditional lenders are encouraged by the growing acceptance of cryptocurrencies. Dario de Martino, an M&A partner at A&O Shearman who specializes in crypto-related issues, noted that banks are viewing regulatory changes as an opportunity to engage with the crypto market rather than a free pass.
In a recent development, banking giants like JPMorgan, Bank of America, Citi, and Wells Fargo are reportedly considering the creation of a consortium-backed stablecoin to compete in the crypto space. This move signals a potential shift towards embracing digital assets within the traditional banking sector.
Additionally, sources reveal that some banks are exploring opportunities in the crypto custody business to store and manage digital assets. Financial institutions are looking to enter the custody space through partnerships with established crypto firms, following the repeal of the controversial Staff Accounting Bulletin – SAB 121.
Former SEC Chair Gary Gensler’s support for SAB 121 had imposed accounting burdens on banks offering custody services for digital assets, leading to widespread criticism. The rule required banks to record crypto holdings as liabilities on their balance sheets, creating additional complexities for traditional financial institutions.
Gadi Chait, Xapo’s Investment Manager, highlighted the challenges faced by banks in adopting crypto, citing outdated infrastructure, regulatory uncertainties, and internal skepticism as barriers to meeting consumer demand for crypto-enabled banking services. Despite these obstacles, the growing interest from major banks in digital assets reflects a broader trend towards institutional adoption of cryptocurrencies.
Overall, while the road to full-scale crypto integration for big banks may be paved with uncertainties, the industry’s gradual shift towards embracing digital assets signals a significant evolution in the financial sector’s approach to cryptocurrencies.