Can banks enter crypto space? Barclays CEO pushes back - what should you believe?
As per a news report on coindesk, Barclays CEO, Jes Staley (former JP Morgan), has stated that the bank has no plans of starting a cryptocurrency trading desk "immediately".
https://www.coindesk.com/barclays-ceo-pushes-back-crypto-trading-desk-reports/
Earlier, last month, it had been reported that Barclays was thinking of starting a crypto trading desk soon.
https://www.coindesk.com/barclays-talking-clients-opening-crypto-trading-desk/
Similarly, there have been talks about GS ready to roll out a crypto desk in June and Morgan Stanley wants to get into the game before anyone else gets into it.
Now there are mainly two key points here that will decide whether banks, be it barclays or goldman or jp or morgan stanley, get into it.
- regulation - banks can either be brokers or liquidity providers. Providing liquidity means that banks should be able to buy bitcoin from a client when a large sell order comes in, in case the exchange can't handle that volume. Its very similar to OTC market. A bank's presence allows for faster trading as a buyer doesnt have to wait for a seller to be found for a trade to happen. The bank will act as a market maker and be ready to provide liquidity readily in both ways to clients. The banks will also need to have an inventory of bitcoin in case a large buy order comes in.
Now, current regulation requires banks to maintain capital on assets they hold. So to provide liquidity in the true sense in crypto markets, banks will need a dedicated balance sheet and classify the risk associated with this asset class and maintain adequate capital against it. For this regulation is needed and crypto needs to be identified as an asset class.
To act as brokers, is an easier scenario for banks. No balance sheet requirement as such but then banks don't add much value here. What you need is a large exchange solely for institutions and current OTC exchanges or markets can easily evolve into that.
Without regulation, no bank will be able to provide liquidity to any client and no bank will enter crypto space other than may be do intraday trades through a different crypto trading arm set up in a jurisdiction like malta.
- Institutional demand and competition within banks
Guys, banking is an insanley competitive industry. If the regulatory aspects are sorted, any other administrative or operational aspect will be ready within days. Banks are extremely nimble and they are already working on getting these things sorted.
I have no dount that positive regulations will be set up soon. Rich people want to get their hands intp crypto and they will force governments to get the regulation ready. Rich people after all fund governments and are therefore shareholders of governments in some sense. Voting every 4 or 5 years is like an year end bonus that is given to employees at companies and we are those employees working for the govt. that in turn works for rich people that fund campaigns.
And it wont be one bank. Once regulation is out, it will be a flurry of banks, all at once ready with liquidity for institutions.
So guys, what do you think? When do you think banks will be ready with respect to cryptocurrency trading? Let me know your thoughts by commenting.
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