Banks have come around on crypto during the last year, Fidelity Digital Asset Management Head Chris Tyrer said, adding that the institutions are “the future access points” for the market.

Tyrer and other executives noted, during a Tuesday panel at Blockworks’ Digital Asset Summit in London, that despite a growing demand for crypto among institutions’ clients, more regulatory clarity is needed before most banks jump fully into the segment.

Conversations have shifted in the last 12 months from blockchain and distributed ledger technology to the metaverse, Web3 and creator economies, Tyrer said. 

“People have sort of realized what this technology enables, where it’s going and what the future state is and are much clearer about the direction of travel to get there,” he added. “I think that, in and of itself, has sort of solidified the investment thesis…and there’s been a groundswell of demand coming through the banks from their traditional client bases as well.”

TradFi and crypto merging

BNY Mellon revealed last week that some of its institutional customers would be able to hold and transfer bitcoin and ether on its new crypto custody platform, which is available in the US. More recently, Mastercard unveiled on Monday an upcoming program that is set to help banks and financial tech companies gain access to buy, hold and sell certain cryptoassets. 

Roughly two-thirds of respondents of Mastercard’s 2022 New Payments Index — published in June — reported a preference for their current financial institution to offer crypto-related services.

Alexey Demyanov, a managing director at Bank of America, said during the panel that people often want to further the relationship with a bank they trust rather than moving business elsewhere.

“As much as the whole idea is to remove trust in a central party or trust in an intermediary, it is efficient, convenient and safe to add a next relationship…with the same institution,” he said. 

Panelists noted that the worlds of traditional finance and disruptive blockchain technology are set to inevitably meet and become interwoven over time. 

Following the collapse of Three Arrows Capital and others earlier this year, Previn Singh, head of Credit Suisse’s Distributed Ledger Technology Centre of Competency, said capital liquidity buffers, for example, might have come in handy for some of those players.  

“I think there’s this slightly cartoonish picture painted in regards to competition where it’s TradFi versus DeFi and never the two shall meet,” Singh said. “I’m really starting to think that will never be the case — there’s the best of both worlds that you can use.”

Regulation will be key

Executives on the panel noted that while venture-capital-funded financial tech companies, for example, might be able to take more risks by moving into a mostly unregulated space, the bar for banks and large asset managers is much higher.

European lawmakers last week voted in favor of the Markets in Crypto Assets bill (MiCA) that is slated to introduce provisions on supervision, consumer protection and environmental safeguards for cryptoassets. The laws are set to come into effect in 2024.

Meanwhile, the US is still working on how best to regulate the space. President Biden signed an executive order in March tasking government agencies with weighing the risks and potential for digital assets. The White House published a crypto framework last month that calls for further study around issues such as central bank digital currencies (CBDCs), DeFi and NFTs. 

“Until there is regulation, I think many of the big banks will probably not touch it, but there are other areas around this space that we can definitely be looking at and that we are looking at,” Rita Martins, head of fintech partnerships at HSBC, said during the panel.

London-based financial services titan HSBC acquired virtual real estate in The Sandbox earlier this year as part of a larger partnership with the metaverse to engage with sports, esports and gaming fans. 

“It’s almost like we moved from the technology side to more around the experiments and what are the new experiments that we could give to the customers within this space,” Martins said.   

Moves by BNY Mellon, Mastercard bullish for space

Despite regulation still needing to be sorted out, BNY Mellon and Mastercard’s latest announcements signal that large institutions are getting prepared to delve deeper into the crypto space.

Serhii Zhdanov, CEO of crypto exchange EXMO, called Mastercard’s upcoming program a “logical move,” adding that the payments giant understands that crypto could outgrow its existing industry. 

“As both Mastercard and Visa have been working with crypto for years now, their processes are already in place and have been sufficiently tested,” Zhdanov told Blockworks in an email. “For the banks, it’s a no-brainer if Mastercard says, ‘We take compliance issues.’ I expect crypto will be a part of every bank’s product line soon.”

Crypto was until recently viewed as “antagonistic” for the traditional banking and payments industries, according to Hugo Feiler, CEO of blockchain protocol Minima. 

“Now, integrating them with mainstream payment mechanisms will make it easier for those holding crypto to utilize it and break down the barriers between the crypto and TradFi systems,” he said.

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