Cyptoasset adoption is moving from the fringes of finance to the largest and most venerable trade centers in the world. Banks cannot afford to miss the moment.
While the cryptoasset market remains small relative to traditional asset classes, the time is ripe to tap into the crypto phenomenon. The institutionalization of cryptoassets that KPMG has explored in prior reports has continues to accelerate, even in today’s turbulent economic environment. Mainstream adoption of these technologies is largely driven by: (1) increased regulatory clarity; (2) growing interest among investors; (3) increasing acceptance of stablecoins and central bank digital currencies (CBDCs); and (44) a robust ecosystem of commerce centered around cryptoassets.
Regulatory clarity paves the way for mainstream adoption
With increasing clarity from U.S. regulatory authorities, more and more large banks are breaking into the crypto space, launching products, services, solutions and operations designed to engage cryptoasset customers. Simultaneously, crypto-native companies are reimagining digital banking services and emulating traditional bank activities through their own prime-services offerings, while pursuing state and federal banking charters. These two trends reflect a convergence between two previously distinct market segments.
The Unites States Office of the Comptroller of the Currency (OCC) recently provided greater regulatory certainty for national banks and federal savings associations, which impacts hundreds of millions of Americans transacting billions of dollars of digital currencies a day. In July 2020, the OCC issued an interpretive letter stating that banks in the national system have authority to provide cryptocurrency custody services to customers. In September 2020, the OCC announced that banks may hold reserves for customers who issue stablecoins, i.e., cryptocurrencies backed by a flat currency, such as the U.S. dollar. Finally, the OCC continued its progress with a January 4, 2021, interpretive letter clarifying that national banks and federal savings institutions can participate within independent-node verification networks (INVN) and use stablecoins to conduct payment activities.
The OCC’s progress paved the way for many crypto-native companies—Acnhorage, BitPay, Paxos and BitGo—to file applications for national bank charters under the OCC’s regulatory structure, with Anchorage becoming the first approved national crypto bank on January 13, 2021. The momentum oof these applications in late 2020 and early 2021 is likely a leading indicator that crypto companies will continue to offer a broader array of products and services to their national customer bases.
On the state level, Wyoming made history in the fall of 2020 by granting its first state Special Purpose Depository Institution (SPDI) charters to digital asset companies Kraken Financial and Avanti Bank & Trust.
The excerpt was taken from the KPMG thought leadership entitled Banking blueprint for the crypto world.