Cryptocurrencies have been rising throughout the years. Since the introduction of Bitcoin around 11 years ago, the coins have been expanding in scope. They keep on gaining users as well as use factors.
The blockchain technology was to operate as a fiat alternative. It has for now surpassed all the expectations. It is usable as a store of value, the same as securities. Companies use it for fundraising through the Initial Coin Offering (ICO).
All these changes are a threat to traditional establishments. They are fast facing a new competition that they never thought possible. Governments and traditional banks have had long-standing issues with digital currencies. The venture capitalists are also now joining the fray.
The Scope of the Crypto Distrust by Banks
The crypto distrust by banks doesn’t seem to be ending any time soon. A survey commissioned by ACAMS and RUSI in partnership with YouGov confirms the same. The survey involved 566 unique professionals from the financial sectors. Among the participants were from the government institutions and the cryptocurrency stakeholders.
The participants were from across the globe, with 32% from North America and 8% from South America. Europe had 22%, Asia 22%, Africa 7%, and the Middle East 5%. 3% represented Oceania.
The participants qualified to discuss cryptos. They were all familiar with digital currencies. Around 95% of them are familiar with Bitcoin. Zcash was the least recognized digital currency at 24%.
Most financial institutions have an issue with cryptos in aiding illicit transactions. 88% of the financial experts believe cryptos aid money laundering. This is different from 56% of the digital currencies users who feel the same.
The other difference is between the government and the cryptos. 89% of the government believes cryptos play a role in the dark market transactions. The same is different from the 50% of the crypto experts who believe cryptos run the dark web.
The financial institutions think cryptos are not willing to deal with illicit transactions. Only 9% of them feel the sector is doing enough to combat the transactions. 48% of the crypto experts believe the industry is mitigating illicit transactions.
The financial institutions also don’t believe in crypto transparency. Only 20% of the sector believe crypto transactions are transparent enough. This is different from the 84% of the digital assets experts who feel the same.
The report shows cryptocurrencies are yet to gain the financial institutions’ trust. Neither is it on the good books of the government. It is also yet to convince the masses of its role in combating illicit transactions.
Other Possible Reasons why Banks Don’t Trust Cryptos
The results from the research don’t seem to tally with the reality. While most entities cryptos aid illicit trading, it is not worthy. Studies have shown that only 1% of cybercrimes are by cryptos. Instead, it’s the traditional banking institutions aiding in illegal transactions.
Most of the banks have gained public trust. For that, they don’t undergo rigorous scrutiny. They have found this loophole to aid illicit transactions. Most criminals have been using banks for money laundering. They are also used to process proceeds of Ponzi schemes. Some also use them to keep embezzlement from developing countries.
It means the banks gain by crypto gaining all the bad press. They take the opportunity to play dirty with no consequences.
The other possible reasons why banks don’t trust cryptos are;
The fiat currency has been the undisputed global currency. It had an unassailable lead with government control.
The banks became the custodian of the economy. Yet, the times are fast-changing.
The emergence of the Covid pandemic has seen an acute decline in the traditional economy. The stocks and the fiat currencies have lost value, almost like the 2008 economic crisis. The same period has seen cryptos become the top gainers.
Cryptocurrencies have gained value all through the pandemic. Most of the coins have surpassed traditional resistance levels. The same has also seen institutional investors start embracing cryptos. Several users mean high liquidity; hence the virtual currencies become more lucrative. The banks don’t like that they are losing the war.
Even though quite established, not everyone currently accesses banking services. Cryptocurrencies have been looking to take up this population. Crypto is now popular among the developing worlds.
Africa has taken up to cryptos. Countries like Nigeria and Kenya have experienced an increase in crypto activities. This is the same in other developing countries like Mexico and India. Some of the jurisdictions have considered using cryptos in place of failing fiats.
The cryptocurrencies offer the ease of the emerging market of cross border transactions. They also fill the gap in the weak banking system. Still, it caters to the emerging tech-savvy population.
Cryptos growing in the emerging markets means banking becomes less attractive.
The traditional banking institutions have also understood the threat of cryptos. They have always feared successful crypto would diminish its role in financial services. They are right. The virtual currency sector is already positioning itself to take over the financial services.
The crypto exchanges have grown popular in recent times. They are gearing to take up the space of the forex exchanges. Several other fintech companies and crypto banks are all up to take the economic area.
The biggest though remains the stablecoins. A stablecoin allows one to access cryptos without the underlying risks. The coins tie their value to commodities and other cryptocurrencies.
A successful stablecoin would lead to a decline in deposits in banks. The banks will have to look for other sources of funding. These are more expensive hence will have to increase the interest rates. With nobody willing to pay the rates, banks will be on the deathbed.
Traditional banks have their reservations towards cryptocurrencies. They believe the coins aid in illicit transactions. They also think the cryptos regulators don’t do enough. Still, there are several other reasons for the lack of trust.