Global Banks Betting Big On Cryptocurrency

The world of finance is changing as banks are increasingly investing in cryptocurrencies and blockchain technology. Crypto is no longer being ignored by major banks, with 55% of the world's top 100 banks investing in the crypto and blockchain space. This shift is driven by the recognition that cryptocurrencies and blockchain technology are disrupting traditional financial institutions and the desire to provide the best financial services to clients. As a result, banks are building teams dedicated to cryptocurrencies and blockchain, with some even offering crypto trading and investment services to their clients.

Banks with the largest cryptocurrency investments

Banks are increasingly investing in cryptocurrencies and blockchain technology. According to Blockdata, 55% of the world's top 100 banks by assets under management are investing directly or indirectly in companies and projects related to digital currencies and blockchain. This equates to around $3 billion in funding so far.

• Standard Chartered: $380 million invested in 6 projects, including blockchain network Ripple, Cobalt (a UK-based trading technology provider), Dianrong, Metaco SA, and LinkLogis Inc.
• BNY Mellon: $321 million invested in 5 projects, including Fireblocks (a platform for financial institutions to issue, move, and store cryptocurrencies), HQLAx (a blockchain liquidity management platform), R3, and Fnality International.
• Citibank: $279 million invested in 14 projects, including SETL (a ledger technology for moving cash and other assets), Axoni, Chain, Digital Asset, HQLAx, R3, and Symbiont.
• UBS: $266 million invested in 5 projects, including Axoni, R3, Fnality International, and ConsenSys (an ethereum software company).
• BNP Paribas: $236 million invested in 9 projects, including Digital Asset, HQLAx, METRON, R3, TradelX, Komgo, and Token.
• Morgan Stanley: $234 million invested in 3 projects, including NYDIG (a crypto custody firm), R3, and Securitize.
• JPMorgan Chase: $206 million invested in 8 projects, including Axoni, ConsenSys, Digital Asset, R3, and HQLAx.
• Goldman Sachs: $204 million invested in 8 projects, including Coin Metrics (a provider of blockchain data to institutional clients).
• MUFG: $185 million invested in 6 projects, including Coinbase and Bitflyer (a Tokyo-based cryptocurrency exchange).
• ING: $170 million invested in 6 projects, including HQLAx.

Other notable mentions include BBVA, Barclays, Nomura, and Wells Fargo, which have also made significant investments in the cryptocurrency and blockchain space.

Crypto banks and trading apps

Crypto banks are cryptocurrency banking and investment applications that allow users to easily and securely buy, sell, and hold digital assets. Crypto banks typically come with federally-insured bank accounts and a prepaid debit card in addition to cryptocurrency wallets. They are usually regulated, and pioneers in the space include Bitwala, Coinbase, and Wirex.

• Standard Chartered: The London-based bank has invested $380 million in blockchain investments, more than any other major bank. It holds Ripple Labs Inc., Cobalt, Dianrong, Metaco SA, and LinkLogis Inc.
• Bank of New York Mellon (BNY Mellon): BNY Mellon has made blockchain investments totalling an estimated $321 million. Its investments include Fireblocks, HQLAx, R3, and Fnality International.
• Citigroup Inc. (Citi): Citigroup has invested an estimated $279 million in at least 14 different cryptocurrency projects, including BUCK, Chain, SETL, Axoni, Cobalt, Digital Asset, HQLAx, R3, Komgo, and Symbiont.
• UBS Group AG (UBS): UBS has made cryptocurrency investments totalling an estimated $266 million. Its investments include Axoni, R3, Fnality International, and ConsenSys.
• BNP Paribas: BNP Paribas has made at least nine cryptocurrency investments, including Digital Asset, HQLAx, METRON, R3, TradelX, Komgo, and Token, totalling an estimated $236 million.
• Morgan Stanley: Morgan Stanley has made three major cryptocurrency investments in NYDIG, R3, and Securitize, totalling an estimated $234 million.
• JPMorgan Chase & Co. (JPMorgan): JPMorgan has made a total of $206 million in cryptocurrency investments. Its investments include Axoni, ConsenSys, Digital Asset, R3, and HQLAx.
• Goldman Sachs: Goldman Sachs has invested an estimated $204 million in eight investments, including Coin Metrics, a provider of blockchain data to institutional clients.
• MUFG: Mitsubishi UFJ Financial Group has invested in Coinbase and Bitflyer, a Tokyo-based cryptocurrency exchange.
• Barclays: Barclays has made 22 investments, totalling $12 million. Its investments include RealBlocks, a tech platform that connects advisors and investors to alternative investment managers.

There are also a number of crypto trading apps and platforms available, such as iTrustCapital, Crypto.com, and eToro. These platforms allow users to buy, sell, and trade cryptocurrencies, often with additional features such as low trading fees, crypto-backed loans, and rewards cards.

Crypto custody

Some investors, however, may prefer self-custody, where they have complete control over their cryptocurrency holdings. This approach can be appealing to those investing smaller amounts or those who prioritise autonomy in managing their investments.

The decision between utilising crypto custody services or opting for self-custody depends on individual preferences, investment size, and the level of control desired. It is essential for investors to understand the risks and benefits associated with each option before making an informed decision.

Currently, there is tension between crypto companies and regulatory bodies like the SEC regarding the registration and compliance requirements for crypto custody. While some firms have obtained licenses, others argue that the existing rules are unclear or impractical for the digital asset industry. These regulatory complexities further highlight the importance of diligent research before choosing a crypto custody solution.

Crypto-backed loans

Crypto loans are repaid with interest over a set term, typically up to five years, and interest rates are usually below 10% APR, which is lower than that of personal loans and credit cards. The loan amount is usually a percentage of the value of the cryptocurrency pledged as collateral, known as the loan-to-value (LTV) ratio. The maximum LTV varies among lenders and the type of crypto used, with Bitcoin and Ethereum being the most common.

There are two types of crypto loans: CeFi (Centralized Finance) and DeFi (Decentralized Finance). CeFi loans are custodial crypto loans where the lender has control over the borrower's crypto during the repayment term. DeFi loans rely on automated digital contracts called smart contracts to ensure the borrower adheres to the loan requirements. With DeFi loans, the borrower retains control of their crypto assets, but the lender can take automatic action against their account if they default or miss a payment. DeFi loans may have higher interest rates than CeFi loans.

Crypto as a retirement investment

Crypto Banks

Crypto banks are cryptocurrency banking and investment applications that allow users to easily and securely buy, sell, and hold digital assets. Crypto banks typically come with federally insured bank accounts and a prepaid debit card, in addition to cryptocurrency wallets. Examples of crypto banks include Bitwala, Coinbase, and Wirex.

Crypto IRAs

A "cryptocurrency IRA" or "Bitcoin IRA" is an IRA that allows you to include cryptocurrencies within its portfolio of holdings. Since the IRS does not recognize a specific IRA for cryptocurrencies, investors must enlist the help of a custodian to include crypto in their IRA. Self-directed IRAs (SDIRAs) more frequently allow for alternative assets like cryptocurrencies.

Some advantages of crypto IRAs include:

• Diversification: Cryptocurrency is not correlated with stocks and bonds, which can help protect retirement balances.
• Potential returns: Cryptocurrencies like Bitcoin offer the potential for huge gains.
• Tax advantages: Crypto IRAs can help investors avoid capital gains taxes.

Some disadvantages of crypto IRAs include:

• Additional fees: Self-directed IRAs typically come with set-up fees, transaction fees, and annual account management fees.
• Extreme volatility: Cryptocurrencies like Bitcoin experience significant price fluctuations, making them a risky investment.
• Significant risk: Cryptocurrencies are not backed by businesses or assets, so they may lose the interest of the public and investors.

Should You Invest in Crypto for Retirement?

Investing in crypto for retirement comes with risks and potential benefits. Crypto is a volatile and risky asset class, and most financial experts recommend that investors hold only a small percentage of their portfolio in crypto. However, crypto can provide diversification and the potential for high returns, making it appealing to some investors.

When considering investing in crypto for retirement, it is essential to do your research and understand the risks involved. It is also crucial to work with a qualified custodian to ensure your crypto investments are secure.

Frequently asked questions