It has been another rollercoaster, headline-grabbing year for crypto currency. The new digital currency experienced further growing pains throughout 2023, from multiple crashes and the conviction of FTX founder Sam Bankman Fried for fraud to the collapse of Coscoin, it’s no wonder that banks have been wary to get on board with cryptocurrencies. However, there are signs that, as the industry matures and becomes better regulated, banks would be missing a significant opportunity to boost customer growth and loyalty by offering crypto.
Digital Currency Regulations
It is significant that many of the scandals arising around crypto emerge from the UK, where there is no clear legislation in place. A number of court rulings provide some guidance to firms, but as yet there are no specific rules that firms can follow to protect customers. In contrast, the EU moving forward with the MiCA (Markets in Crypto Assets) Regulations. These rules were first drafted in December 2022 and are set to come into force in December 2024. In the UK, the Financial Conduct Authority (FCA) has implemented a new crypto currency marketing regime. This requires any firm advertising to investors in the UK to either be authorised by the FCA or have any marketing messages approved in advance of publication.
Crypto has entered the mainstream
In addition to the implementation of regulations for consumer protection, other authorities are starting to recognise that people are investing in crypto and the topic must be addressed. For example, in the UK, HM Revenue & Customs (HMRC) has launched a specific disclosure process for people to declare their earnings and will soon automatically start receiving information on any digital currencies held. It is not just regulatory bodies that have an interest in crypto. In Switzerland, the city of Lugano has announced that it will accept Bitcoin and Tether for taxes and other payments. This follows early adopters Zermatt, which first provided this option in January 2020 and the Swiss canton of Zug, which has accepted Bitcoin and Ether from companies and individuals since 2021. These examples suggest that the crypto market is becoming ubiquitous and significant enough for both regulatory and tax authorities to start paying attention, and to use digital currency to collect revenues.
The time is right for banks and wealth firms to offer crypto
There are a lot of signs in the market that point to the idea that it is time for banks and wealth management firms to support customers keen to invest in cryptocurrencies. The demand is there, and the opportunity is starting to emerge alongside it. For example, in the US, major investment firms including BlackRock and Fidelity are planning to launch a spot bitcoin exchange-traded funds (ETFs). The possibility of a spot bitcoin ETF is being considered by the US Securities and Exchange Commission (SEC) after years of resistance. ETFs would allow investors to enter the crypto market in the same way that they can invest in other stocks. It also removes much of the risk because the funds will track the price of bitcoin without storing crypto manually or dealing with a crypto exchange.
2023 may well be the turning point for crypto; banks and wealth management firms can use the current interest in the topic to gain market share and boost customer loyalty. Our own research from last year shows that both retail and HNWI investors are keen to work with current provider. You can download our report to discover why the opportunity for established financial organisations may be more significant than previously anticipated, including details on the age range and income brackets of investors interested in crypto, investor goals, the impact of crypto winters on investor confidence and the need for greater education to understand the market volatility.