Posted 10 months ago | by Catoshi Nakamoto
Last week, the American Bankers Association (ABA) released a report on digital assets for bankers that discusses everything from Bitcoin’s origins to different digital asset use cases, the various types of assets, technological foundations, and the industry that makes it all possible. The report also includes information on existing and emerging regulatory issues around cryptocurrency, what to expect in the next year as well as some considerations for banks as they approach the crypto sector.
“Cryptocurrency markets are rapidly evolving, and there is currently a diverse and complex ecosystem of companies offering access to digital asset products,” the report reads. “The digital and programmable nature of these products means they can be used to facilitate many kinds of financial activities that increasingly mirror the products and services offered by traditional financial institutions.”
The document cleverly entitled: “Understanding Cryptocurrency What Banks Need to Know,” dives into a number of topics with a focus on crypto-related business activities comparing them to existing products and activities in the banking space as well as explaining the underlying blockchain technology itself. The report also makes note of the ongoing and emerging regulatory issues related to digital assets and tells bankers what to expect in the next 6 to 18 months.
The report splits up digital assets by four categories and even includes NFTs. These four categories are — Cryptocurrencies, Stablecoins, Central Bank Digital Currencies (CBDCs), and NFTs. But that’s not all the ABA even makes a mention of decentralized finance or DEFI noting its “recreation of traditional financial services such as payments, lending, trading, insurance, and asset management without the need for central intermediaries such as a bank or brokerage firm.”
“Cryptocurrencies (sometimes referred to as crypto coins) like Bitcoin and Ethereum are the leading “coins” in the crypto space. Their value is derived by the markets set up to facilitate their sale and transfer. In short, their value at any given time is determined by what people are willing to pay. New developments and advancing technologies are quickly broadening the space, leading to new cryptocurrencies.
Stablecoins were designed in response to the significant price volatility in traditional crypto coins like Bitcoin. Stablecoins are structured to minimize price volatility and are typically pegged 1-to-1 to a fiat currency, though exceptions exist. The stable value allows these assets to serve as a medium of exchange and a store of value. In March 2021, Visa announced it completed its first transaction involving the stablecoin USD Coin (“USDC”). The transaction, which was valued in USDC, was sent directly to Visa for settlement.
Central Bank Digital Currencies (“CBDCs”) are a concept being explored by central banks around the world in an effort to “digitize” traditional fiat currency. Unlike other digital assets explored here, CBDCs are a central bank liability4 that would carry full currency status. There are a number of models for CBDCs being evaluated globally. The way a CBDC is designed determines how economic actors interact with it, and the impact on banks and the economy. CBDCs are beyond the scope of this report and will be explored further in other ABA research.
Non-Fungible Tokens (“NFTs”) are cryptographic assets on blockchain with unique identification codes and metadata that distinguish them from each other. Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency and, therefore, cannot be used as a medium for commercial transactions. NFTs are blockchain supported and offer a certificate of authenticity for a digital asset such as artwork, music or a video,” the ABA wrote.
The ABA is typically the organization that discusses a topic, before the Fed Reserve. The ABA acts as a representative for the entire $20+ trillion dollar banking industry. According to the association’s website, the “ABA proudly represents institutions of all asset sizes and charter types. These diverse perspectives drive the development of our daily work and policy positions.”
This document release is significant as Bitboy Crypto previously reported, that 70% of all U.S. banks can now offer their customers the ability to purchase Bitcoin through a partnership with custodian NYDIG and Fiserv. Fiserv is a leading global provider of payments and financial services. According to Business Wire, this will allow consumers to manage bitcoin transactions directly within their financial institution’s online and mobile banking portals, providing users an easy way to buy, sell and hold the number one digital asset through their banks, skipping cryptocurrency exchanges like Coinbase.
That same press release expresses that Fiserv and NYDIG are working toward implementing additional functionality, including the ability for banks to implement bitcoin-based rewards programs. It’s also worth mentioning that NYDIG was tapped by Anthony Scaramucci’s SkyBridge to custody its pending Bitcoin exchange-traded fund (ETF).
Last year, former U.S. Office of the Comptroller of the Currency (OCC) Brian Brooks who is now the head of Binance U.S. gave the ability for banks to custody cryptocurrency for their clients. However, many banks are choosing to use NYDIG for this process rather than go through the requirements to do so safely. Brooks on his way out also gave approval to crypto custodian Anchorage to receive a national trust charter making it the first digital asset bank in the country, as Bitboy Crypto reported.
The U.S. government seems obsessed with trying to rid the cryptocurrency space of “private wallets” otherwise known as non-custodial wallets or those owned by users and not custodians. As Bitboy Crypto first reported last year under the Trump administration, both FinCEN and the Financial Action Task Force (FATF) are seeking to control unhosted or non-custodial wallets. FATF and FinCEN have both expressed in their view transactions using unhosted wallets increase AML/CTF risks. For those new to crypto, an “unhosted” wallet is a software where you generate your keys and you are in control of your funds. This embodies the entire ethos of cryptocurrency, stemming from the phrase, NOT YOUR KEYS, NOT YOUR CRYPTO.
If the digital asset regulations in the U.S. do go into effect, as Bitboy Crypto warned from two insider sources in September of last year, it would mean crypto businesses would be forced to know every person their users’ crypto transactions, keeping logs, and verifying identities (KYC) even before a transfer can go through for sending crypto.
Those talks are still ongoing as this news blog detailed with extensive research into the entire legislative landscape surrounding the digital asset industry in the United States. The U.S. even just appointed its first-ever Chief Digital Currency Advisor, Michele Korver who was a prior assistant attorney in the Office of the United States Attorney for 10 years, where she prosecuted numerous cases of cybercrime and national security crimes.
According to the agency, Korver will be developing “FinCEN’s leadership role in the digital currency space by working across internal and external partners toward strategic and innovative solutions to prevent and mitigate illicit financial practices and exploitation.”
ABA’s release concludes as “the use of crypto currencies expands, banks are looking for opportunities to provide their customers access to these assets through their banking relationship. Customer interest is driving banks’ consideration of offering access to crypto products.” They further state a likely bogus poll expressing that “a survey by institutional crypto trading and custodial firm NYDIG found that 80% of Bitcoin holders would move their Bitcoin to a bank if the bank had secure Bitcoin storage.” ABA also makes a note of the “increasing profitability of the crypto industry,” expressing that “banks have found it more lucrative to take crypto companies on as partners and their customers as clients.” Adding, “for their part, crypto companies need banks to provide access to the payments system to onboard and offload fiat deposits.”
If there was any doubt that the banks weren’t paying attention to crypto, this latest report by ABA shows that the banking industry is paying full attention to digital assets watching as the space evolves. While regulation is inevitable, it’s important that we don’t allow the government to over-regulate and take away our newfound sovereignty, allowing us to control our own wealth. It’s also even more crucial that we make sure that the banks don’t become the only way to buy digital assets, skipping exchanges as NYDIG expressed was its own agenda with the partnership with Fiserv and now the ABA has as well.
This may be bullish for the price, but this is the old financial system grasping on to be a part of the new one by making themselves a middleman, which will allow them to accept fees for their “services.” Short term this is positive as crypto is getting more exposure, however, long term, always remember, NOT YOUR KEYS, NOT YOUR CRYPTO. Just as we have been saying, don’t sell your Bitcoin, Ethereum, or Cardano.
Bitcoin is currently trading at [FIAT: $31,722.35] DOWN -0.1% in the last 24 hours according to Coingecko at the time of this report.