Bank traders fear missing out on crypto night

Banks have cryptocurrency issues. Insider trading bureaus and a wide range of clients are pressuring senior executives at big banks to launch cryptocurrency services.

Compliance departments and boards are less enthusiastic, but there is a growing desire to do something to avoid being left behind. We don’t know what to do and how to do it.

The rise of companies built around Bitcoin and other digital assets may give dealers the impression that Wall Street executives are eager to watch the hackathon.

And, aside from the potential danger of dragging a good crypto name through the mud at some point, banks face some very real challenges in their digital endeavors. They can’t move fast. You must comply with regulations that are currently unclear or have not yet been enforced. Finding and retaining talent is becoming increasingly difficult. What if everything turns out to be a big scam?

Despite the potential challenges, the big banks can no longer shrug their shoulders with digital coins. The market has reached a scale of $ 1.8 trillion.

“The world of digital assets is too big to ignore. We believe that crypto-based digital assets have the potential to form a whole new asset class, ”said Bank of America, the first research dedicated to crypto. It is indicated in the leaflet.

Several large American banks have announced their involvement or their business plan in the digital market, but many European dealers have quietly followed suit.

Some, like Goldman Sachs, have chosen to make a splash with the crypto effort. Intentionally create a lot of noise about this baby’s footsteps. European banks are more tortured and therefore the messages are mixed.

In February, a research team from Commerzbank, a German lender, sent a note explaining why analysts are not covering Bitcoin. By September, the lender had set up a digital asset team.

It’s hard to decide where the traditional financial giant stands in the crypto world. A complex and highly technological process for preserving digital assets, preservation is risky and extremely difficult to achieve.

Currently, banks can only buy and sell futures and other non-monetary contracts, and transactions are just as suspect, making it difficult to generate the returns that crypto trading companies can get. Rental is prohibited at this time. And companies operating in the digital asset market are never afraid.

“Crypto is expanding into… the traditional financial services market,” said David Kinitsky, CEO of Kraken Bank. “Companies [native to crypto] It will beat out existing businesses in this new medium, as seen in other industries with the introduction of the Internet. ”

Part of the problem is that everything crypto has to do with cutting edge technology, a far cry from the kind of kits that advocates of mainstream finance are typically associated with. After years of consolidation and mergers, the technology behind the banking giant is clumsy, fragmented, and often esoteric.

“Banks aren’t really technological breakthroughs,” said Diogo Monica, co-founder of Banks and cryptocurrency technology provider Anchorage Digital.

Banks aren’t as cool as they used to be, so talent is also an issue. Investment banks are looking for retired coders to run esoteric, intertwined computer systems as young people no longer learn the “language” needed to run some of Wall Street’s biggest institutions. Recruiters say they have to do it.

“Banks are definitely in trouble,” said an expert financial market recruiter, saying young coders enjoy better wages and more flexibility in cryptocurrency and tech-focused companies. I did. And in many cases, the job is just more interesting.

However, all is not lost. The reputation and large customer base they already have are valuable, especially when more conservative investors such as insurance companies are involved. Lending and borrowing can also be opened in the future.

Christine Trent Parker, financial sector group partner at law firm Reed Smith, said: And if their technology doesn’t support it, banks can buy it at any time.

eva.szalay@ft.com

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