Banks, Blockchain and Cryptocurrency: What to Expect?
  1. Posted
  2. 14.05.2018

At the moment, bitcoin prices struggle to recover and remain volatile. The past few days have left the cryptocurrency market on a low note, with the market not showing any major improvements. Throughout the 14th of May, bitcoin prices struggle to surpass $8,500, and the market capitalization of all cryptocurrencies has dropped $9 billion over the last 24 hours.

However, many are sure that change is on the way and that prices could regain momentum. Cryptocurrency analyst and researcher Matthew Newton argues that the markets are set to recover. Since major banks are investing in cryptocurrencies and blockchain startups, it could act as a catalyst for cryptocurrency prices to rise to previous levels.

“Despite some initial posturing, the reality is most big banks have already invested significant amounts in research and development into blockchain technology and cryptocurrencies themselves. It will still take time for institutional investors to fully come around – and the fact that Goldman won’t be buying or selling actual coins suggest some skepticism remains – but there’s a growing acceptance that these assets are here to stay,” said Newton.

Newton’s opinion is echoed by other key figures in the financial sector. Steve Chiavarone, a portfolio manager at Federated Investors, a US-based investment firm that manages $364 billion in customer assets, believes in blockchain as an economic growth drive.

Since large banks such as Goldman Sachs, JPMorgan, and Bank of America all work with major enterprises that could stand to benefit from blockchain software, they have started to research and invest in a range of blockchain networks and technologies to facilitate the growing demand for cryptocurrencies and blockchain technology.

In an interview with CNBC, Chiavarone stated: “When you think about it from an enterprise perspective, it has the ability to replace reconciliation, which is expensive and requires back office, time, and paperwork, with more instantaneous verification. What that means is, companies can have more efficient supply chains. They can cut their back and middle office costs and that will allow businesses to flow more efficiently and will allow cost to be cut and that savings to be passed along. We think blockchain will be one of five key technologies along with automation, robotics, AI, and the Internet of Things.”

This explains why major banks are heavily investing in blockchain research, since any company with a supply chain can benefit. New blockchain startups like Bluzelle have already build trusted blockchain networks for large-scale corporations such as HSBC and KPMG, and if they are successful at replacing their back offices, eliminating the costs of running supply chains and extensive paperwork by providing instantaneous verification, blockchain technology could lead to a fourth industrial revolution.

“Any company that runs supply chains can benefit from blockchain technology and it is some of the tech names that underlie that kind of technology. Whether it be Nvidia or Intel, or any kind of company that’s around processing power that enables blockchain verification or the beneficiaries of it [are good investments],” said Chiavarone, hinting that investing in companies that may benefit from blockchain technology is potentially a good investment strategy.

No Future in Traditional Finance?

There has been a noticeable growth in the importance of cryptocurrency companies, with many new startups and exchanges recruiting talent from the traditional finance sector to the cryptocurrency industry.

Former Barclays trader, Daisuke Murayama, has decided to move from the European bank to the Japanese cryptocurrency exchange BitFlyer. As he told Bloomberg, “I just didn’t see a future in traditional finance.” Murayama explained that the entrance of big players in the finance sector has made it difficult for banks to disregard the growing demand for cryptocurrencies, and so many financiers have started to consider a change of career in fears that traditional financial institutions will soon become unnecessary.

Analysts such as Razin Ashraf argue that “crypto companies need finance guys to fill roles across the board: business development, sales, account management, operations, and compliance just to name a few.”

Therefore, as banks continue investing into blockchain networks and startups, and cryptocurrency exchanges continue to hire financiers from traditional banking institutions, investors believe that cryptocurrencies may evolve into a proper emerging asset class.

Featured image from PBS.