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Will Cryptocurrency Lead to a Digitalized World of Banking and Finance Amidst the Risks?

The outbreak of the pandemic and the measures of social distancing and lockdown that came along with it gave a push to the already growing crypto market, mainly because of the easy accessibility during the pandemic. Furthermore, cryptocurrencies provided a hedge against inflation, affordable remittances, as also acted as a better payment option. The rise of decentralized finance ecosystems, the concept of digital twins, and NFTs among others is accelerating the development of the cryptocurrency market and broadening the access to financial services, which were once not available to all.  The instantaneous payment system facilitated by cryptocurrencies along with its other benefits is likely to benefit the population of the developing world.

Traditional banks and industry players are still hesitant to include cryptocurrency in their operations mainly because of their concerns related to volatility, security, regulatory uncertainty, and scalability. Despite this, some centralized finance companies and firms that are early adopters of cryptocurrency such as JP Morgan, MasterCard, Visa, PayPal, US Bank and so on are gradually taking steps to include digital assets in their conventional operations. For instance, between August 2021 to May 2022, approximately 23 banks including Morgan Stanley, Goldman Sachs, BNY Mellon, CITI, and HSBC made at least one investment in block chain /cryptocurrency. Additionally, the most active investors in the blockchain space are KB Financial Group, United Overseas bank, CITI Bank, Goldman Sachs, and Common Wealth Bank of Australia in the same period. The largest player in the investment banking industry, JP Morgan, has an entire division dedicated to cryptocurrency, wherein the company’s digital currency is used for making commercial payments globally, as cited in our newest publication “Global Cryptocurrency and Blockchain Market 2022”. Another U.S. bank, Wells Fargo is expected to offer cryptocurrency to its wealthier clients this year. Furthermore, Visa, MasterCard, and PayPal, are already allowing their clients to make payments via stable coins. These massive steps taken by industry leaders in the direction of establishing a dynamic cryptocurrency ecosystem indicate a heightened consumer demand along with the interest among traditional banks to open up to digital assets such as crypto.

The investments in blockchain infrastructure are also growing, with Morgan Stanley making an investment in a blockchain infrastructure and services company known as Figment. Citi, Wells Fargo and BNY Mellon have been focusing their attention on Talos, an upcoming digital assets and cryptocurrency trading infrastructure provider. Moreover, the growth of investments in the cryptocurrency and blockchain space highlight a stable outlook and the investments are forecasted to grow further in the future. It also highlights the importance that traditional financial players are giving to blockchain, the backbone of cryptocurrency, which will further lead to the development of the crypto landscape.

Although digital money has been developing rapidly, it comes with its own challenges and risks. Cryptocurrency is vulnerable to value fluctuations, making them a less than ideal payment choice. Moreover, central banks are doubtful about cryptocurrency mainly because the interest rate of a country, controlled by the central banks does not have any impact on cryptocurrencies, which makes it difficult to control the values of these assets. Apart from this, there are still very few regulations in place pertaining to crypto. The cryptocurrency crime rate increased tremendously in 2021.

Thus, to sum up, cryptocurrencies definitely have a bright future, with some investments banks already investing in the crypto and blockchain infrastructure. The use of crypto will be normalized once policymakers are able to evaluate the risks associated with it and tighter regulations come into play.