The early 2020s mark a pivotal moment for the global banking sector: cryptocurrency is no longer a fringe innovation but an emerging financial reality. Retail clients and institutional investors alike are increasingly drawn to digital assets and the distributed-ledger technology (DLT) that powers them—especially blockchain. While skepticism remains, particularly around volatility and regulatory uncertainty, forward-thinking banks now recognize that cryptocurrencies represent not just risk, but opportunity.
Cryptocurrencies offer faster transactions, reduced operational costs, enhanced transparency, and new revenue streams. As fintechs, tech giants, and even central banks explore digital currencies, traditional financial institutions must act decisively—or risk losing market share to agile competitors.
Cryptocurrencies are a vehicle with great prospects.
The Growing Momentum Behind Digital Assets
Media coverage of cryptocurrency often swings between extremes—hype and fear. But beneath the noise, tangible trends reveal sustained institutional interest. Bitcoin, the most prominent digital currency, remains highly volatile. After plummeting over 75% from its 2017 peak, it has since recovered partially—demonstrating resilience despite speculation.
More telling than price swings is the rise in institutional capital. Average investment per deal grew from $5 million in 2015 to nearly $20 million in the first half of 2020. Total investment volumes are approaching 2018’s peak levels, signaling growing confidence.
Several factors fuel this momentum:
- Professionalization of the industry: As infrastructure matures and major players enter, crypto markets gain credibility.
- New investment vehicles: From initial coin offerings (ICOs) to crypto hedge funds and tokenized securities, investors now have diverse options.
- Regulatory involvement: Banks and regulators stepping in lend legitimacy and reduce perceived risk.
- Blockchain familiarity: Use cases like smart contracts and automated settlements build trust in underlying technologies.
- Portfolio diversification: Crypto’s low correlation with traditional markets makes it attractive for hedging.
While many crypto firms are still young, they’re forming the foundation of future digital ecosystems. Financial institutions that engage now can shape these systems rather than react to them.
👉 Discover how integrating digital assets can future-proof your financial strategy.
Strategic Crypto Offerings for Banks
Time is running out for banks to avoid disruption. Tech companies and non-bank financial providers are already offering crypto wallets, stablecoin payments, and integrated trading—threatening to pull deposits away from traditional accounts.
As Bank of England deputy governor Sir Jon Cunliffe warned, consumers may soon shift from holding money in bank current accounts to storing value in non-bank-issued stablecoins. This shift could undermine banks’ core lending model by reducing deposit bases.
Yet banks possess key advantages: trust, regulatory compliance expertise, customer relationships, and cybersecurity infrastructure. Leveraging these strengths allows them to offer secure, compliant crypto services that fintechs struggle to match.
Key Business Use Cases
Banks can participate in the crypto economy in multiple ways:
- Investment facilitation: Help clients invest directly in vetted cryptocurrencies or diversified crypto funds.
- Tokenized assets: Offer tokenization of real estate, private equity, or other illiquid assets—similar to securitization but on blockchain.
- Currency exchange services: Enable trading between fiat and digital currencies (e.g., Bitcoin, Litecoin, or future CBDCs).
- Digital payments integration: Embed crypto options into existing payment platforms—like Revolut does by letting users send money in BTC alongside traditional currencies.
- DLT-powered operations: Use blockchain for back-office efficiency—such as smart contracts for automated settlements or transparent record-keeping.
Customer demand is a strong indicator. Institutional investors seek growth assets and DLT-based monitoring tools. Venture capital firms favor crypto fundraising mechanisms. Retail clients want portfolio diversification and faster cross-border transfers.
The most effective strategy? Integrate crypto offerings seamlessly into existing products. This reduces friction and builds trust while unlocking new revenue.
👉 See how leading institutions are embedding crypto into mainstream banking.
Managing Risk: KYT, Compliance, and Custody
Innovation must be balanced with responsibility. Cryptocurrencies have been linked to illicit activity, tax evasion, and fraud—raising valid concerns about compliance and security.
The Basel Committee on Banking Supervision has cautioned that crypto assets “do not reliably provide the standard functions of money.” To mitigate risk, banks must adopt robust safeguards across three pillars: Know Your Transaction (KYT), Structured Regulatory Compliance (SRC), and Custodian Services.
Know Your Transaction (KYT): Beyond KYC
Traditional Know Your Customer (KYC) processes verify identity but not transaction integrity. In contrast, KYT leverages blockchain’s immutable ledger to trace every transaction back to its origin.
With KYT:
- Suspicious patterns (e.g., rapid fund movements or dark web links) trigger alerts.
- Analytics identify high-risk behaviors in real time.
- Banks can score transactions based on geography, timing, and counterparties.
As BIS economist Raphael Auer suggests, this enables “embedded supervision”—continuous monitoring that detects anomalies before they escalate. KYT doesn’t replace KYC; it enhances it. Together, they strengthen anti-money laundering (AML) compliance and customer trust.
Additional verification layers like Know Your Data (KYD) help validate off-chain or hybrid transactions—critical when fiat meets crypto.
Structured Regulatory Compliance (SRC)
Regulation remains fragmented. The U.S. takes a cautious, evolving approach, while Europe leans toward applying existing frameworks to crypto activities. Countries like Liechtenstein have introduced comprehensive models, and China is piloting a digital yuan.
This inconsistency creates uncertainty. Will crypto be classified as currency, security, commodity—or something new? The answer shapes taxation, reporting, and licensing requirements.
Banks must proactively manage this complexity by:
- Creating a regulatory heat map to track global rules.
- Conducting gap analyses between current practices and emerging standards.
- Building risk diagnostics tailored to specific crypto initiatives.
- Developing compliance software—potentially as a sellable product for exchanges.
These steps ensure readiness amid shifting landscapes.
Innovation in Custodian Services
Crypto custody—secure storage of digital assets—is a high-growth opportunity. Cyberattacks and fraud make protection essential. Cold storage (offline) offers maximum security; hot storage (online) enables liquidity but increases exposure.
Fintechs like BitGo and Gemini offer custodial solutions with insurance, but many institutional investors remain wary due to regulatory ambiguity.
Traditional banks are better positioned. They already manage sensitive financial data with advanced cybersecurity and have relationships with regulators. The U.S. Office of the Comptroller of the Currency has affirmed that national banks can legally provide crypto custody—a green light for innovation.
Estimates suggest banks’ reputational and regulatory advantages could translate into 1% annual fee revenue on managed assets—a compelling business case.
Entering the crypto custody market can be a lucrative business for suppliers that offer value-added services.
Frequently Asked Questions
Q: Are cryptocurrencies safe for banks to offer?
A: Yes—if proper safeguards like KYT, SRC, and secure custody are implemented. Risk is manageable with the right technology and governance.
Q: Can banks legally hold cryptocurrency for customers?
A: In many jurisdictions—including the U.S.—yes. National banks are permitted to provide crypto custodial services under existing authority.
Q: How do crypto transactions differ from traditional banking transfers?
A: They’re faster, often borderless, and recorded on decentralized ledgers. However, reversibility is limited once confirmed.
Q: What’s the difference between stablecoins and other cryptocurrencies?
A: Stablecoins are pegged to fiat currencies (like USD), reducing volatility. This makes them more suitable for payments and savings.
Q: Will central bank digital currencies (CBDCs) replace private cryptocurrencies?
A: Not necessarily. CBDCs may coexist with private coins, serving different purposes—official money vs. speculative or decentralized alternatives.
Q: How can banks start experimenting with crypto safely?
A: Begin with small-scale pilots—such as offering crypto trading for accredited investors or integrating blockchain into internal settlements.
The next few years will determine whether banks lead or follow in the digital asset revolution. The technology is evolving rapidly, but the real uncertainty isn’t about risk—it’s about missing opportunities.
The real uncertainty is not about risk but about missing opportunities.
Banks that educate themselves today, launch thoughtful experiments, and build trusted ecosystems will position themselves as leaders—not laggards—in the future of finance.