Banks are becoming more and more interested in cryptocurrencies; Bank of America and JPMorgan all have cryptocurrency-related commercial operations. However, businesses involved in cryptocurrencies. Tesler have also shown a growing interest in getting banking licenses. For instance, to get a banking license, representatives from Coinbase and Ivy Koin recently met. Naturally, this makes sense since bitcoin businesses sometimes perform the same functions as banks but make use of cryptocurrency instead of fiat money.
The differential in interest rates traditional retail banks take for loans and managing customer cash is how they generate revenue. The Federal Deposit Insurance Corporation has severe capital reserve standards that it must follow (FDIC). However, most of the money that custodian banks receive comes from fees for safeguarding assets against thieves and preserving them. Businesses involved in cryptocurrency find this latter form of the bank to be appealing.
Reasons why cryptocurrency businesses are interested in becoming banks
- Insurance by FDIC
The FDIC’s insurance program is the primary and most important. The reason why bitcoin businesses are looking to get a banking license. For those who are unaware, the FDIC covers a customer’s balance of up to $250,000 in case the bank fails. It is significant because cryptocurrency exchanges contain substantial assets. For example, Coinbase has client obligations of over $twenty billion, which would represent a huge liability in the case of collapse.
FDIC insurance also gives the company a certain amount of respectability. Customers are no longer required to be concerned about what would happen to their balances if the bitcoin (bitcoin trading software) exchange failed to deliver.
- Better Services
Businesses dealing in cryptocurrencies would be able to provide more financial services, such as loans, direct deposits, and cards if they had a banking license. Regardless of the size of the holdings, it is essentially impossible to obtain a credit based on cryptocurrency ownership. However, loans based on such holdings could be obtained if the coins are kept on a Coinbase that holds a banking license.
- Extra legitimacy
Many clients are wary of working with a financial firm that lacks a banking license for financial transactions. A bank license will undoubtedly boost credibility because it calls for adhering to stringent financial laws, which clients prefer to see in a financial organization.
Will cryptocurrency businesses be awarded a banking license?
Practically speaking, the notion that cryptocurrency exchanges store cryptocurrency in a vault with a key is the main cause for concern. Client assets would be lost, for instance, if Coinbase lost access to the vault or if there was a hack. If a bitcoin exchange loses access to its vault, the Federal Reserve cannot just print more money. The banking industry is a very exclusive club, which presents another issue with granting a banking license to a cryptocurrency exchange. It could be a bigger issue than the access to customer funds because they often do not appreciate outsiders entering the club. To assist bitcoin exchanges, a hybrid solution could be developed. It seems to be the most likely way to obtain a banking license.
According to the findings of a recent EY survey of cryptocurrency owners, while more people are getting interested in cryptocurrencies, most of them prefer to hold them within a bank. 80% of customers prefer that choice, even though most holdings continue to be on cryptocurrency exchanges. However, given these statistics, this will shift as banks navigate the maze of regulatory concerns.
Many investors, particularly older ones, also hold cryptocurrencies as long-term investments. Fewer people use it to pay for items or transfer money as remittances, yet a tiny fraction of individuals account for most of the trading. The fact that many new wallets primarily only permit users to purchase, hold, or sell bitcoins may help to explain why there is less use of cryptocurrencies in remittances. Therefore, how do banks enter the market? Custodial services development is the first step. It can be done by hiring a third party to take on the task, requesting a third party to give the bank the tools they need to handle it, or making the extremely uncommon decision to construct it entirely in-house.