Will Blockchain and Crypto Replace Traditional Banking or Will a Hybrid Model Emerge
Financial Services Can Be Improved Using New Technologies
There are new technologies that are changing the way financial institutions work. And indeed, the integration between the old financial system and the new one is underway. The potential that blockchain technology and cryptocurrencies have is enormous and can certainly change the whole industry.
However, there is an important gap that cannot be closed between traditional financial services, mainstream investors and cryptocurrencies. Of course, there are different platforms that allow users to purchase virtual currencies but this is quite inconvenient. For example, as there are no proper regulatory frameworks, exchanges have different KYC and AML procedures that are sometimes slow and inefficient. Additionally, they offer fewer assets than other crypto-to-crypto trading platforms.
There are exchanges such as Binance that offer a wide range of crypto-to-crypto assets but it operates without a strong regulatory restriction. There are some assets that do not have enough liquidity and this is something that damages the industry.
The market is currently fragmented. The digital asset market has a high entry barrier for mainstream investors and lack of options for some companies that have digital assets reserves and want to be connected to traditional financial services.
There are some controversies in the cryptocurrency market that are clearly affecting the possibility to build a bridge between institutions. For example, Wells Fargo decided to cut off their relationship with Bitfinex since the exchange did not have access to financial services.
Additionally, Bitfinex had a close relationship with Nobel Bank International since it was the institution providing financial services to the crypto exchange. However, the bank is currently searching for a buyer. Tether (USDT) and Bitfinex are part of the same parent company, which is known as iFinex. Nobel Bank was also providing services to Tether, but it has also cut the relationship with it. This is why Bitfinex is currently searching for new financial services providers.
Another report released by BitMEX informed that projects with related to Initial Coin Offerings (ICOs) are liquidating most of their funds into fiat currencies. Most of them are holding around 25% of their initial Ether. This shows that there is a high uncertainty about what will happen with some crypto assets such as Ethereum.
It is unlikely for Bitcoin and other cryptocurrencies to completely replace the current financial system. Indeed, it is possible to have a hybrid and mixed financial system. Once this happens, companies in both the traditional financial industry and the crypto space will be able to engage in a new financial dynamic.
There are several companies and projects that are working on these solutions, but it will take time until they will create a real impact.
Coinbase and Gemini, two important US-based cryptocurrency companies are working with regulatory agencies and traditional financial institutions to offer better solutions to the market.
Coinbase has more than 25 million users and is building a wide variety of services, including for retail stores, institutions and other investors.
At the same time, Gemini has also bridged the gap when it announced that it has an insurance coverage for custodial assets. Moreover, Gemini has a close contact with regulators and has launched a stablecoin known as Gemini Dollars (GUSD).
Additionally, Formosa Financial, another initiative, aims at connecting holders of digital assets to different digital asset services and exchanges. It wants to reduce fragmentation in the market offering users a single point of contact with applications and brokerages.
Furthermore, it provides users with increased asset liquidity and a more seamless experience with KYC and AML processes.
Clearly, it will take a long time to have both industries connected and operating properly. However, there are several firms that are already working in this direction. With the proper regulatory environment, the future looks bright for both industries.