Dealers at banks fear to miss the crypto party

banks have a growing cryptocurrency problem. Internal trading desks and an ever broader customer spectrum put the management of large banks under pressure to introduce services related to cryptocurrencies.

compliance departments and board members are less enthusiastic, but the feeling that something has to be done grows so as not to be left behind. It's just not clear what and how.

The rise of companies based on Bitcoin and other digital assets threatens to make dealers look like Wall Street executives who long for looking cool to look out with a hackathon: uncomfortable, full of fear and struggle for relevance.

and apart from the potential dangers that somehow pull cryptocurrencies through the dirt at some point, banks face a number of very real challenges in their efforts to digitize: their technology has not grown; You cannot move quickly; You must comply with regulations that are currently unclear or are not yet in force. It is becoming increasingly difficult to find and keep talents. And what if everything turns out to be a big fraud?

Despite the potential challenges, large banks can no longer ignore digital coins, a market that has grown to $ 1.8 trillion.

"The universe of digital assets is too great to ignore it. We believe that crypto -based digital assets could form a completely new investment class," said the Bank of America in its first research note about crypto.

Several large US banks have announced their commitment or planned advances in digital markets, while many European dealers tacitly follow them.

Some, like Goldman Sachs, have decided to cause a sensation with their efforts to cause crypto and deliberately make a lot of noise for their little steps. European banks are more tortured and therefore the news is mixed.

In February, the research team of the German Lending Commerzbank published a note in which it was explained why his analysts did not cover Bitcoin ”. The lender had set up a digital asset team by September.

The decision where the giants of traditional financial system fit into the world of cryptocurrencies is difficult. Custody, the highly technology -driven and complex process of storing digital assets, is risky and very difficult to insure.

The trade is also questionable, since banks are currently only able to buy and sell futures and other cashless contracts, which makes it difficult to achieve the kind of returns that the trading companies can achieve with origin in cryptocurrencies. The lending is initially taboo. And companies that were active in the markets for digital assets are not afraid.

"Crypto is expanding in.. The traditional financial services market," said David Kinitsky, CEO of Kraken Bank. "Company [native to crypto] will prevail in this new medium towards established providers, as we have seen in other industries than the Internet was introduced."

Part of the problem is that everything that has to do with crypto contains the most modern technology - far from the type of kit with which the supporters of traditional finances are normally associated. After years of consolidation and mergers, the technology on which the banking giants is based is creaking, fragmented and often obscure.

"Banks are not really technology-oriented companies. You just don't have the digital infrastructure," said Diogo Monica, co-founder of Anchorage Digital, a provider of banking and cryptocurrency technology.

talent is also an issue because banks are simply not as cool as before. Recruiters say that investment banks are forced to search for retired programmers to operate mysterious and confused computer systems because young people no longer learn the "languages" that are necessary for the operation of some of the largest institutions on Wall Street.

"Banks definitely have a problem," said a specialized recruiter for financial markets and found that young programmers enjoy better payment and more flexibility in crypto or technology-oriented companies. And in many cases the work is simply more interesting.

However, not everything is lost. The reputation and the existing significant customer base will be valuable, especially if more conservative investors and insurance companies are involved. Lending and recording could also open in the future.

"There will be many colleagues who feel more comfortable in dealing with Goldman Sachs than with a crypto-native company," said Christine Trent Parker, partner of the Financial Industry Group at the Reed Smith law firm. And if your technology is not sufficient, the banks can buy it at any time.

eva.szalay@ft.com