Peter Hody: «Banks Need to Cope with Bitcoin»

Banks have tried for a decade to drum up enthusiasm for the ongoing bull market, and now are forced to watch idly as the biggest investment boom of the decade unfolds – without banks participating in it. Bitcoin is the public face of digitization of the financial system and as such the bane of the old banking world, which so far has watched in awe how the crypto boom unfolded.

The total rejection of bitcoin however, as voiced by top-bankers such as J.P. Morgan boss Jamie Dimon and UBS Chairman Axel Weber isn’t tenable. There isn’t a single private banker in Zurich, with whom finews.com has been in touch, who wouldn’t admit in private that a rising amount of clients wants to participate in the bitcoin rally or tell stories of those who already earned a fortune with the crypto business.

«Chicago traders know of the crash potential»

So far, bitcoin is an execution only business for the banking industry. They conduct transactions on third-party platforms as requested by customers – but not more. Investment guidelines and regulation don’t allow them to do more. But the banks’ investment committees are thinking hard about creating a new asset class with bitcoin and cryptocurrencies.

The Chicago-based exchanges CME and CBOE are behind the first breaches, having taken up trading with bitcoin futures. It remains open for question whether this will lead to the much-flaunted systemic risks. A potential collapse of the financial system in case of a total bitcoin crash is more akin posturing than a new Lehman-Brother-scenario.

The spark that caused the last financial crisis was the crash of the U.S. real estate market that all banks believed was crash-proof. By contrast, the bitcoin futures traders at CME and CBOE are well aware of the risk for a crypto-currency-crash at any time.

«Bitcoin may not be the pinnacle, but clients demand it»

While it may currently look as if bitcoin were to remain a pure object of speculation and presumably won’t emerge from its niche as a transaction currency due to technical insufficiencies, it would still be wise for banks to watch the cryptocurrency boom very closely. And they would do even better if they were to establish a certain crypto know-how at their investment committees.

The praise that bankers are heaping on blockchain, while excluding bitcoin – the hitherto most successful product of the groundbreaking technology – may escape their clients entirely.

The industry is working hard to cut their enormous costs with the help of applications derived from blockchain. Customers will receive the least benefit from this effect.

Bitcoin may not be the pinnacle of what revolutionary technology may yield, but it most definitely is what potential banking clients want. To portray bitcoin and the boom as mumbo-jumbo runs contrary to the promise of banks to put clients’ needs at the center of their activities.

Peter Hody is deputy editor-in-chief of finews.ch. He has held several managerial positions at «Cash» and «Stocks», Swiss financial news outlets. Previously, he was a reporter at Associated Press and RTL/ProSieben. Hody studied history and acquired an MBA in Media Management at the Hamburg Media School.

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