Crypto banking is a part of the industry that is still developing, but 2024 is full of many important events that can significantly affect it. Starting from regulatory and legal frameworks and ending with the global adoption of cryptocurrencies.

More and more companies are using crypto banking solutions to provide customers with new services, keep abreast of new trends, and develop their businesses. Coincub, a technical and analytical platform, has analyzed the global crypto banking market and prepared a report. It contains many theses, but we will focus on the most important ones.

Global Crypto Banking Market

More and more investors are considering Bitcoin as a potential solution to some of the major problems in the financial ecosystem. Coincub analysts note that increased regulatory clarity and increased interest among customers are the main reasons why banks and financial institutions are taking cryptocurrencies seriously.

They emphasize that the United States and the United Kingdom are the most attractive regions for companies working with digital assets. In particular, there are 25 crypto banking companies in the US and 17 in the UK. Coincub claims that this situation is not surprising, as both countries are the best cryptocurrency countries and have established financial markets with a fairly developed infrastructure and regulation.

The report says that Europe is the region with the largest number of crypto banks. 63 firms are providing crypto banking services in different cities. Analysts highlight Standard Chartered UK, BBVA Switzerland, and Barclays UK as the main cryptocurrency-friendly banks. These companies have made significant investments in the cryptocurrency landscape.

However, other countries are also demonstrating their loyalty to cryptocurrencies. For example, Ukraine, which has been rapidly developing the crypto industry in recent years, has seen the growth of the Ukrainian crypto community, and as a result, banks are becoming more loyal to cryptocurrencies.

In addition, the country operates several cryptocurrency payment platforms, which further emphasizes the attitude of Ukrainians towards the industry. Through these platforms, they pay for purchases in cryptocurrency in stores. For example, Corefy, Switchere, Whitepay, and many others.

The latest platform is also part of the ecosystem of the WhiteBIT cryptocurrency exchange, which from time to time holds a large number of different events and activities for users. One of them is the recent Bitcoin halving challenge called “Ha-ha-halving”.

The Role of ETFs in the Banking Sector

The report also mentions the role of spot ETFs, emphasizing that the approval of Bitcoin ETFs increases confidence in cryptocurrency as a mainstream investment vehicle.

BlackRock’s iShares Bitcoin ETF has set a new precedent by accumulating $10 billion in assets under management faster than any other ETF before it. This achievement highlights the potential of ETFs as a gateway to asset tokenization. BlackRock CEO Larry Feehan says that “these events are not just individual successes, but important steps towards the broader goal of asset tokenization.”

The analysts note that the banking industry is currently on the verge of a “transformative era where Bitcoin and spot ETFs serve as key mechanisms for integrating traditional finance with the world of cryptocurrencies.” Emphasizing that Bitcoin ETFs provide lucrative growth opportunities and are an optimal entry point for banks that decide to start working with regulated cryptocurrency services.

The report also covers the topic of recognizing Ether as a security. Analysts note that the classification of cryptocurrency as a security by the Securities and Exchange Commission (SEC) could have potential long-term implications for various sectors of the crypto industry.

On the one hand, the recognition of Ether as a security could approve the use of blockchain technology for the issuance and trading of regulated financial instruments, thereby encouraging the further development and adoption of tokenization platforms. On the other hand, many dApps and DeFi are built on Ethereum, relying on it for transactions and smart contract interactions.

They also emphasize that Bitcoin could “benefit” from the fact that the US Securities and Exchange Commission classifies Ether as a security. Such a move could make it even more attractive to investors looking for access to cryptocurrencies without regulatory uncertainty.

Coincub claims that the integration of spot ETFs will open up new opportunities for banks to channel their clients’ funds into cryptocurrencies or cryptocurrency funds, including ETFs.

However, they note that the distinction between banks’ custodial role and investment strategies remains paramount. While banks are expected to increasingly assume custodial responsibilities for cryptocurrencies in the future, the allocation of client funds to crypto investments will be influenced by regulatory conditions, client risk appetite, and banks’ assessment of the viability of these investments in diversified portfolios.

The adoption of stablecoins is growing among financial companies

Coincub analysts also emphasize the role of stablecoins, noting that they provide the security necessary for the cryptocurrency market to thrive. Currently, 35% of banks, such as SEBA bank, Kraken, Bakkt, and Swissquote, support the issuance of stablecoins to users.

According to the data, most financial companies have not yet joined this trend. Many institutions are still planning to introduce stablecoins to facilitate their use, for example, for cash management and peer-to-peer transactions. However, some banks are starting to experiment with stablecoins as part of pilot programs.

Moreover, constantly changing regulatory requirements make some financial institutions cautious about entering the stablecoin market. Analysts point out that last year, new regulatory requirements for stablecoin issuers were in the spotlight. MiCA rules require them to maintain sufficient reserves, protect and segregate assets, ensure the redemption rights of token holders, and fulfill other obligations.

They also point to other jurisdictions that are taking similar steps. For example, Hong Kong and the United Kingdom are working on updating legislation to create a regulatory framework for stablecoins. And Singapore has already created a regulatory framework.

Main challenges and risks for crypto banks

One of the main problems is security. Analysts note that crypto banking has several vulnerabilities, including fraud, hacking, and theft. Attackers can exploit the flaws of crypto banking platforms and wallets. Worst of all, consumers fall victim to fraud or fraudulent transactions and have no recourse, as cryptocurrency transactions are irreversible.

To mitigate security risks, cryptocurrency providers try to take measures to protect users’ assets from vulnerabilities. They implement robust security measures (e.g., regular security checks, cold storage of funds, and multifactor authentication) to protect customer assets.

Analysts also highlight regulatory uncertainty as a problem. The risk of regulatory uncertainty remains significant in the crypto industry, as regulation is still limited. In addition, each country has its legal status in terms of cryptocurrencies.

As a result, customers have few remedies at their disposal. In addition, it can be difficult to go to court in cases of fraud and theft. However, regulatory uncertainty has decreased today as more and more governments are introducing regulations.

Another challenge for crypto banking is market volatility. The growth of cryptocurrencies in the financial sector has revolutionized the traditional banking system. However, most banks are hesitant to invest heavily in cryptocurrencies due to their volatility and limited regulatory framework. Excessive volatility of cryptocurrencies may increase liquidity risks for banking institutions.

However, some banks are finding solutions to this problem. Some banks use stablecoins to minimize the risk of the unpredictability of cryptocurrencies. For example, JPMorgan allows institutional clients to use the JPM stablecoin to make cross-border payments.

Summary

As we can see, the current state of crypto banking in the world is characterized by active growth and important changes in various sectors of the global economy. Coincub’s report sheds light on this process, emphasizing all the potential risks and challenges facing the industry.

At first glance, it would seem that increased regulatory transparency and increased customer interest in cryptocurrencies are driving the development of crypto banking. However, there are problems related to security, regulatory uncertainty, and market volatility. The road to stable and secure crypto banking is not yet complete, but efforts are already underway to mitigate risks.