When bitcoin was launched in 2009, the developers aimed to provide an alternative to the existing banking system. They wanted digital currency as a medium of exchange and blockchain technology to improve various financial transactions worldwide. Nobody, perhaps, has ever wished for the platform to operate in the same way as such financial institutions do.
For some industry observers, that’s far from the possibilities that they have ever anticipated. But many things have changed after ten productive years – most of the outcomes proved favourable to crypto players. As a result, there are now companies who are eyeing to become banks, and that’s probably surprising to hear.
The initiative was triggered by some driving forces, such as the potential of the cryptocurrency market to expand further and become more stable when it adopts the current banking system. Two of the prominent players that have filed applications with the Office of the Comptroller of the Currency are payment processor BitPay and crypto exchange Paxos. Once their applications are granted, they would be able to offer crypto services to clients. To understand this matter in a broader context, read the following facts.
It’s a Business Decision, Experts Say!
It might seem puzzling that an industry that once aimed to become mainstream finance that’s separate and independent from banks is now eyeing to move in the same direction. For some players, the reasons might be more compelling than what’s already stated. The truth is, this is a business move for the crypto companies to provide custody services to institutional investors who have growing interests in digital currency. This would open new opportunities to upsell other services to clients as cryptocurrency custody is now a growing market.
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Cryptocurrency custody has become low-hanging fruit for the industry in recent years. The OCC had previously allowed nationally chartered banks in the United States to offer such services to clients. According to the agency, consumers and investment advisors may consider using regulated custodians to ensure they can protect their private keys and access their funds. This would address the shortcomings of cryptocurrency exchanges that do not generally provide private key access to clients. Customers are constrained to withdraw their virtual currency to a private wallet to have control of their respective keys.
The Interesting Case of Paxos and BitPay
As earlier mentioned, Paxos and Bitpay filed their applications with the OCC for such a purpose. Paxos stated that the planned bank would perform certain activities that are currently facilitated by Paxos’ New York state-chartered trust company and supervised by the New York Department of Financial Services, including custody services. The company has an existing trust charter in New York, and the current request for a national charter would significantly expand the extent of its operations.
On the other hand, BitPay is taking the same route. The company’s application with the OCC has similar context and purposes. It stated that the bank would act as a fiduciary for the merchant clients to ensure that they can offer crypto pricing quoted to the shoppers at the best available exchange rate and also digital currency payouts to other concerned business’ recipients.
New Initiatives are Born Out of Growing Industry
Crypto firms who are working on becoming banks see the broader opportunities in the growing industry. There is already a diverse mix of players that conduct financial transactions in the network, and this development may have positive implications for businesses. For the experts, this market is one that shouldn’t be taken for granted.
As forecasted, industry demand is expected to grow in the coming years as more institutional investors are going into the crypto market. From the prominent consultancy’s perspective, cryptocurrency custody has tremendous growth potential and can proliferate rapidly once the target customers are reached. Institutional investors and crypto hacks could be the main drivers of the move toward this lucrative investment.
Recent reports recognized the profitability of cryptocurrency custody services. In particular, custodians can earn from management fees for delivering straightforward services and by offering other services in the emerging crypto ecosystem. This step by some crypto companies may revolutionize the way cryptocurrency transactions are facilitated and may also impact the current banking system.
Risk Note
Investing in cryptocurrency is a risky activity. The market is inherently volatile and unpredictable, so you need to monitor certain indicators to make favorable decisions on your digital assets. Those new initiatives by the crypto companies may also affect some services that you may afford in the market. It’s highly encouraged that you stay updated on the new developments to become aware of essential matters that could impact your interests.
