Despite Cooling Temperatures, Crypto Is Still Hot

Posted by Larry Pruss on Nov 3, 2022 12:12:19 PM


Professionals focused on the strategic and operational aspects of digital assets such as cryptocurrency have learned to disregard the media cycles.

Last year’s breathless hype – driven almost entirely by a retail investor frenzy – has given way to a “crypto is dead” storyline that emphasizes volatility and fraudulent applications. Lost in the noise is the fact that Bitcoin’s price has been relatively stable over the past four months.

Meanwhile, those serious about the technology are keeping their heads down, using the opportunity to craft product roadmaps beyond buy/sell/hold capabilities. The prominence of companies featuring digital assets and Web 3.0 solutions at the recently completed Money20/20 conference – 13,000 people attended – speaks to the continued interest among financial services industry leaders.  

A sampling of recent announcements by major players provides ample evidence that “smart money” remains highly engaged in the digital asset space.

More FI Enablement in the Cards?

In mid-October, Mastercard announced a suite of solutions designed to let financial institutions deliver crypto trading capabilities to customers. The move creates a unified go-to-market brand encompassing several of their recent acquisitions, including CipherTrace and Ekata. Mastercard is touting a holistic offering, extending beyond buy/sell/hold to security management, cross-border payments, and crypto cards.

Mastercard cites research indicating that a solid majority of consumers would prefer to conduct crypto activities through their financial institutions. Banks and credit unions have been slow to launch such services, largely due to a lack of regulatory clarity. October’s move implies that Mastercard expects such roadblocks to soon clear. Other studies show that consumer interest in crypto has remained relatively steady despite 2022’s price declines.

As a leading global payments network, Mastercard is among those that stand to lose the most from a shift to distributed ledger technology. On the other hand, it’s in the enviable position of having deep pockets and extensive FI relationships. Mastercard does not want to be cast in the Kodak or Blockbuster role when crypto case studies are written a decade from now.       

Custody and Stability

The dozen or so banks and credit unions that have launched crypto capabilities to date have done so through partners responsible for the custodial role. In Mastercard’s case, Paxos performs this function. BNY Mellon recently became the first FI to change this equation, announcing that it will handle custody directly for its institutional clients.

This is an important milestone for several reasons. First, custody was one of the “bright line” issues causing discomfort among financial services regulators. It likely took an institution of BNY Mellon’s stature to clear this hurdle with the OCC – it’s reasonable to assume other banks will soon follow. Just as importantly, BNY Mellon stated publicly that client demand drove its decision. Since crypto custody has historically been the domain of relative newcomers, this move adds significant credibility to the space.

Finally, the moves of household name technology brands continue to signal engagement. At Money20/20, Stephane Kasriel, head of commerce and financial technologies at Meta Platforms, elaborated on the firm’s freshly rebranded Meta Pay app. While acknowledging it is “a fiat wallet today,” he positioned its future as “a digital wallet for identity services and access to all digital assets you own.” This is clearly an area of interest for financial institutions.

PayPal was less specific about the progress of its stablecoin project, news of which leaked in January. May Zabaneh, Vice President of Product in PayPal’s Blockchain, Crypto, and Digital Currencies unit, shared that “stability will be essential” to crypto’s role in mainstream payments.

“It’s our responsibility to be innovating and exploring,” she added. “If it’s going to be an everyday payment, we have a responsibility to provide structure and protection.”

By adding buy/sell/hold capabilities to its popular wallet app, PayPal played a key role in fueling Bitcoin’s mass market adoption. The firm now seems focused on the next phase of that journey. For instance, PayPal now enables users to transfer Bitcoin and Ethereum to other crypto wallets, as well as into self-custody. In October, it announced the introduction of passkeys as a more-secure login method, perhaps befitting the heightened sensitivity around crypto transfers.

The Bottom Line

Don’t be fooled by the relative quiet in crypto trading – serious players are using this period to consolidate their positions and prepare for the next phase in the technology’s rollout. Ongoing moves by market leaders are indicators of the road ahead.

Financial institutions should be formulating their plans as well. SRM continues to monitor this space closely – please reach out if you’re interested in exploring a strategy for adding digital assets or delivering a solution to the market.

Topics: Payments, Vendor Contract Negotiation, Digital Assets, Crypto

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