Brian Armstrong talked about institutional investors in the cryptocurrency space on Twitter earlier this week, saying the question of whether or not institutions will adopt cryptocurrencies has been answered. Coinbase is reportedly seeing hundreds of millions of dollars per week pouring in from legacy financial institutions.
The main issue cited by institutions looking to get into Bitcoin and cryptocurrencies is of custodianship. Getting a hardware wallet is a good idea for the average user with a few hundred dollars invested, but when it comes to massive financial institutions, they’re looking to invest anywhere from hundreds of thousands to hundreds of millions of dollars. With those kinds of numbers, extreme care needs to be exercised in the storage of coins.
Most financial institutions simply don’t have the infrastructure for a robust security system, equipped with the tools needed to properly safeguard any coins they are responsible for.
This issue paved the way for companies like Xapo and Coinbase, to offer custodianship to those firms looking for a safe way to invest big amounts in Bitcoin or other crypto-currencies.
Finance firms hopping on the Bitcoin Bandwagon
Coinbase Custody is currently the largest custodian of cryptocurrencies. Officially launching their services in July of last year, they slowly built their customer base up, reaching $1 billion in assets controlled in April of this year. With Bitcoin’s bull run seen earlier this summer, it prompted many fence-sitters to finally jump into the market and invest. Within just five months of reaching $1 billion, Coinbase now controls over $7 billion in assets, and that trend seems to be continuing.
The biggest issue with crypto adoption at the moment is the lack of infrastructure surrounding these payment networks. Companies like Coinbase that are building out the framework that will allow the legacy financial institutions to easily use cryptocurrencies will foster the next wave of adoption, allowing more and more people all over the world to take back control of their finances and enjoy more economic freedom.
How long until Bitcoin price breaks $20k again? Are institutional investors the answer? Let us know your thoughts in the comments down below!
Images courtesy of Bitcoinist Media Library, Twitter: @brian_armstrong
Another week, another of Crypto Tidbits. While this week was crazy bearish for the Bitcoin price, the fundamental developments seen made up for the market collapse. Bakkt revealed that it will be finally launching its Bitcoin futures product; Coinbase made a large acquisition of a facet of Xapo; and Binance revealed that it will be taking its formal step into the U.S. market in the coming months.
It wasn’t all sunshine and rainbows, however. A massive cryptocurrency scam trended on Crypto Twitter and a number of verdicts on Bitcoin exchange-traded funds (ETFs) were put off once again.
Related Reading: Crypto Tidbits: Bitcoin Mining by Blockstream, Ripple Investment Plans, Binance US Unveils Altcoin Lineup
Bitcoin & Crypto Tidbits
Bakkt Cleared by NDFS, Will Launch Bitcoin Futures in September: That’s right folks, Bakkt is finally ready to (fully) launch its Bitcoin futures contract to the world. Announced via a surprising blog post on Friday, the cryptocurrency exchange, which has been backed by players like the New York Stock Exchange, Microsoft Ventures, and Starbucks, has received NYDFS and CFTC — the two financial regulators involved in such cryptocurrency vehicles — clearance to offer its physically-deliverable Bitcoin futures to clients. The prominent startup is eyeing a September 23rd launch date. Analysts have stated that the product is likely to see mass adoption from the get-go, and might be the catalyst that slingshots the industry into its next round of rapid growth.
IRS Continues Crypto Crackdown… And It’s Not Done Yet: The Internal Revenue Service of the U.S. has continued its crackdown on American crypto investors, recently issuing yet another round of letters. The letters, according to CoinDesk, were sent to those that the IRS believes are skirting taxes on cryptocurrency trades. This comes shortly after the tax agency sent a preliminary warning to thousands of Coinbase users. A slide deck leaked on Twitter suggested that the IRS is likely to only expand its cryptocurrency-related collection efforts.
PlusToken Scam Trends on Twitter, Causes Mass Panic in Bitcoin Markets: This week, prominent cryptocurrency venture capitalist Dovey Wan issued dozens of tweets about a scam called “Plus Token”. As this scam originated and operated in Asia, it caught a large portion of Crypto Twitter by surprise, despite the fact that the scheme had been going on for just around a year. Wan claimed that while the ringleaders of the $3 billion scam had been caught, blockchain evidence suggested that PlusToken’s wallets, which contains hundreds of thousands of Bitcoin and Ethereum, was sending capital to exchanges. This result in fears that the market was going to dump.
Institutions Are Foraying Into Crypto: According to a recent tweet from Brian Armstrong, the chief executive of Coinbase, there is no question that institutions are starting to make bonafide forays into “crypto”. Citing data from his firm’s deposits, there is around $200 million to $400 million worth of cryptocurrencies deposited into Coinbase’s coffers each week from “institutional customers”.
Coinbase Picks up Xapo’s Institutional Custody Division: According to Fortune, Coinbase has acquired Xapo’s institutional custody business. for $55 million, outbidding Wall Street’s Fidelity Investments It isn’t clear if any of Xapo’s employees or executives will be jumping ship. But, it has been confirmed by a source that a “majority of Xapo’s largest clients” will be transferring their assets to Coinbase’s custody unit, which now owns over 514,000 BTC — wow. It is important to note that with this deal, Xapo isn’t leaving the crypto custodian business. Far from, in fact. Speaking with Fortune, Casares has stated that it will still have control over its famous Swiss vault, which he claims will be used to store Bitcoin on behalf of Xapo’s retail clients.
Binance to Launch U.S. Branch: Speaking to Cheddar, Binance’s Changpeng Zhao revealed that his company will likely be launching the U.S. branch of its service, which was launched to combat regulatory concerns, by November.
NBA’s Dallas Mavericks Now Accepts Bitcoin: Despite the fact that it may be just a PR stunt, the NBA’s Dallas Mavericks, owned by Mark Cuban, will now be accepting Bitcoin as a method of payment for game tickets and merchandise. Announced via a press release on August 13th, the Dallas Mavericks has become the second team in the NBA to directly accept Bitcoin. Per the release and tweets posted by those involved in this sudden move, BitPay will be the payment processor in this move.
Ciphertrace Finds Cryptocurrency Crime is Still a Massive Industry: According to a recent report from industry analytics firm Ciphertrace, bad actors online have managed to make billions through digital asset-related crime in 2019 alone. The report, which is titled “Q2 2019 Cryptocurrency Anti-Money Laundering Report”, found that aggregate losses incurred by investors and firms due to cryptocurrency crime has reached $4.3 billion in the first half of 2019. 5% of the sum was sourced from hacking. Around 20% of the illicit gains were a result of misappropriated funds. And these rest of the gains were stolen through exit scams, like the aforementioned Plus Token.
Bitcoin ETF Proposals Delayed… Again: The U.S. Securities and Exchange Commission (SEC) has delayed its verdict on proposals in this class for the umpteenth time. On Monday, it simultaneously issued a delay verdict on three Bitcoin-backed funds from Bitwise Asset Management, VanEck and SolidX, and Wilshire Phoenix.
Passing the Burden of Negative Rates to Bank Clients Opens Door for Cryptocurrencies
Record low and negative interest rates have put commercial banks in a difficult spot. Across Europe, they have been passing the burden to their clients. Some have introduced fees for those with large account balances, while others are punishing everybody equally. In any case, some bankers fear this could lead to withdrawal of large amounts in cash, jeopardizing the cashless society traditional financial institutions have been building. Cryptocurrencies and their users have a lot to win in this situation.
Danske Bank, the troubled Danish institution which is struggling to overcome the consequences of a large money launderingscandal, is among those European banks that have been dealing in negative interest rates the longest. Denmark was arguably the first country on the continent to introduce them after the 2008 crash. In the summer of 2012, the central bank lowered its benchmark rate to -0.2% and has kept it around or below zero ever since.
With unprecedented low interest rates in Europe, many financial institutions have made a decision to pass the burden on to their account holders and even introduce fees on large cash balances. However, Danske has recently vowed not to punish its wealthy depositors with additional charges, unlike other major banks in the region. Chief Financial Officer Christian Baltzer warned in a recent interview with Bloomberg that charging customers with large deposits could pose a risk to society, as he put it.
Baltzer said that Danske acknowledges the difficult conditions in the financial sector, but emphasized Denmark’s leading bank does not plan to impose negative interest rates on personal savings or current accounts. In his opinion, charging private customers to hold money in their accounts could add new risks, one of which would be the erosion of the progress toward developing a cashless society. He further commented:
Doing so could have a negative impact at the societal level, including the risk of customers withdrawing more deposits in cash.
Negative interest rates are becoming the norm in Denmark, and corporate clients have already felt the brunt of the shift. Some banks admit they are about to pass the costs to retail depositors as well, something Danske views as a risky move and states they’re not even considering. Also, the Danish bankers association is now trying to convince Denmark’s central bank to introduce measures mitigating the pain for account holders.
Sub-zero rates have left investors in the Nordic country and elsewhere in Europe with very few options. Denmark’s government debt is currently trading at negative yields across all maturities. For example, the yield on the 10-year bonds has dropped to -0.6%. By the way, that’s not a phenomenon isolated only to the Scandinavian region. Bond yields in the rest of Europe and in industrialized countries elsewhere have been close to zero or negative for some time.
Big Banks Impose Fees on Big Deposits
In these unfavorable circumstances, Danske Bank, which has been dogged by various problems, is trying to avoid a move other banks have already decided to make. Starting from November, UBS, the largest Swiss banking group with global presence, is going to apply an interest rate of -0.75% to CHF deposits of more than 2 million francs (approx. $2.04 million) and charge an annual fee of 0.6% on deposits of €500,000 ($550,000) or more.
The adjusted fees will be paid by the bank’s individual clients who hold Swiss francs with the Group’s bank in Switzerland, where other financial institutions like Julius Baer have already imposed similar rates and fees on cash deposits, Reuters reported last month quoting an official UBS statement. Another giant, Credit Suisse, also revealed it might do the same in regards to wealthy customers. Banks operating in the Eurozone are charging corporate depositors to cover the cost of negative rates but most large institutions have not levied such fees on private accounts yet.
Benchmark interest rates in the developed world remain historically low as central banks stubbornly insist on applying the same old recipe against recession. It’s a recipe that in an atmosphere of uncertainty and looming trade wars has largely failed to stimulate tangible economic growth but has instead inflated new bubbles, in the property market for instance. The Swiss National Bank policy rate and the rate it charges on commercial banks’ sight deposits remain in negative territory at -0.75%. The European Central Bank is expected to cut its deposit rate by 10 basis points to -0.5% next month. Denmark has its main interest rate set at -0.65%.
A Chance for Cryptocurrencies
A decade after the 2008 global financial crisis, banks are once again facing serious challenges. Beside Danske, other prominent European banks like Deutsche Bank, Raiffeisen, and KBC also had to deal with money-laundering accusations last year. In a first sign of what may be the next big financial meltdown, several banks in the U.S., Europe and China have already failed and had to be bailed out. The wave of job cuts in the industry is another indication the banking sector is struggling to overcome major problems.
In this situation, passing the burden of low rates on to bank account holders is going to hurt the traditional financial system. Even if wealthy depositors aren’t charged with additional fees, the negative interest rates are enough of a punishment for all clients in general. And it would be much easier for ordinary Europeans who keep billions in numerous small accounts to cash out their money, or even switch to alternative digital assets.
Such transition would happen even faster if people take a minute and think about what cash deposits really are. When you give your money to the bank, it becomes an asset of the financial institution and your account is only a liability. From a legal standpoint, you no longer own the money, just the right to withdraw under the terms agreed to with the bank for your checking or savings account. These terms define your rights when it comes to accessing what used to be your funds.
Things work differently in the world of cryptocurrencies where you are the sole owner of your holdings. The troubles of the traditional financial system have reignited interest in decentralized digital coins, the prices of which do not depend on benchmark interest rates determined by central banks. But at the same time, in case you prefer to receive stable income for your crypto assets, new platforms have emerged offering banking services in this space and the interest rates are in fact much higher.
If you are looking to securely acquire bitcoin cash (BCH) and other leading cryptocurrencies, you can do that at Buy.Bitcoin.com. And thanks to a new partnership between Bitcoin.com and Cred, you can now earn up to 6% on your BCH holdings. The offer shows that saving in digital assets can be much more profitable than keeping fiat in a bank account. This not only when prices are going up, but also through newly developed crypto banking services introducing more traditional products to the nascent industry.
Do you think banks should pass the burden of interest rates onto their clients? Share your thoughts on the subject in the comments section below.
Images courtesy of Shutterstock, Tradingeconomics.
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Lubomir Tassev is a journalist from tech-savvy Bulgaria, which sometimes finds itself at the forefront of advances it cannot easily afford. Quoting Hitchens, he says: ”Being a writer is what I am, rather than what I do.“ International politics and economics are two other sources of inspiration.
Texas Libertarian Dr. Ron Paul, who is a former U.S. presidential candidate (three times, in 1988, 2008, and 2012), discussed his views on blockchain technology and cryptocurrencies in an interview on Thursday (August 15). Also, a day earlier, he issued a statement on the Federal Reserve’s upcoming FedNow Service.
When asked about Facebook’s proposed cryptocurrency Libra, Paul said that he did not know what was going to happen with Libra, but had this to say about blockchain and crypto in general:
I’am all for cryptocurrencies and blockchain technology because I like competing currencies… I’m for the least amount of regulation. I don’t know what’s going to happen to cryptocurrencies. I think it’s great idea. And I only have one rule: no fraud.
The FedNow Service
America’s central bank, the Federal Reserve, announced via a press release issued on August 5 that Federal Reserve Banks “will develop a new round-the-clock real-time payment and settlement service, called the FedNow℠ Service, to support faster payments in the United States.”
On Wednesday (August 14), Campaign for Liberty, a nonprofit political organization founded by Ron Paul that promotes respect for the U.S. Constitution, issued a statement (posted on its national blog) by its Chairman, Ron Paul, about the proposed FedNow Service:
“Consumers already have numerous options to make real-time payments, so the Federal Reserve’s decision to begin work on a central bank-run and controlled real payments system—what Competitive Enterprise Institute Senior Fellow John Berlau calls “FedNow”—is baffling.
“A Federal Reserve-run real payments system will crowd out private alternatives, leaving consumers with one government-run option for real-time payments. This will be bad for consumers and real-time entrepreneurs but good for power-hungry Federal Reserve bureaucrats who will no doubt use FedNow to help “protect” the Federal Reserve’s fiat currency system from competition from crypto currencies.”