Crypto exchanges are soon to face even more competitions as banks in the US are going forward to offer spot crypto trading in light of updated guidance.
The move comes after the Office of the Comptroller of the Currency validated that national banks can facilitate some transactions that involve crypto assets. Actually, the regulatory body defined that banks are allowed to facilitate transactions in "riskless principal" trades in cryptos, meaning they can now act as facilitators for customers without any inventory and market risk.
Shortly after, there was a report that JPMorgan is looking into crypto trading for institutional investors. Despite the lack of comment from JPMorgan, this development confirms that large Wall Street firms are gearing up for more than just testing crypto markets.
In effect, this regulatory clarification provides banks with the opportunity to start acting as crypto brokers. The banks may not run the complete exchange but can facilitate the buying and selling of cryptocurrencies for which they can receive payments in form of fees while providing exposure to crypto in a system that many institutional investors already trust.
Legal and market analysts believe that the implications are likely to be far-reaching. Banks offer regulatory comfort, strong customer bases, and economies of scale through financial services. This could attract retail and institutional customers, who might want to trade bitcoin or ether on their existing banks rather than a crypto exchange.
Analysts believe that spot trading on entry levels is where the damage is most likely to be done. Exchanges that cater to retail clients and engage extensively in basic buying and selling may find their market impacted as banks start to share this order flow. Conversely, banks have an edge since they are not necessarily impacted by cryptocurrency volatility yet make money out of it.
The major banks have already started working on this. JPMorgan has developed blockchain settlement systems and digital payment channels. Goldman Sachs has relaunched cryptocurrency trading desks for derivatives and structured products. BNY Mellon has started digital asset custody services for institutional investors. It looks like they have all been working quietly towards this end.
However, as analysts warn, this trend does not signal that banks will replace cryptocurrency exchange platforms. Rather, it can be expected that many banks will continue to depend on cryptocurrency firms for liquidity, pricing, custody technology, and trade infrastructure. Needless to say, this paves the way to collaboration rather than competition.
While banks are not converted into crypto trading platforms by the OCC, what is clear is that the banks are officially sanctioned to engage in crypto brokerage services. In a regulatory environment where crypto is shrouded in ambiguity, this alone can significantly alter the dynamics of crypto trading in the United States. As for the exchanges, the message is clear. Competition is no longer coming from other exchanges, but from the traditional financial system.
#JPMorgan
