The Crossroads of Financial Worlds
A well-experienced professional in the crypto industry shares his ideas about the coexistence of the main financial worlds of today: crypto assets and fiat money.
Ajit Tripathi works for a big crypto exchange and takes part in global digital undertakings that represent his ideas about crypto, such as Breaking Banks Europe. He has worked with blockchain technology for years, serving as both an executive and a co-founder of fintech companies.
I will always remember the day when I decided to get involved with blockchain. It was the early spring of 2015, and I was partnering with Big Four, for whom I offered to start working with blockchain technology. Their first reaction was something like, “Isn’t blockchain a con artists’ thing?” It was funny that people who worked for the world’s giants were so afraid even to pronounce the word seriously.
Of course, no one argues with a client, especially in the consulting business. But I managed to find a few people in the banking sector who were tired of things running the same way from year to year and craved innovative solutions. We became so-called partners-in-crime as we decided not to wait for approval to start talking to clients about financial technologies. We started to give people the idea of crypto and blockchain. Finally, a few senior executives at a few large multinational investment banks started to talk about blockchain technologies, inviting various professionals and making it the topic of the day. Soon, everyone started talking about blockchain, but very few expressed any desire to dive deep.
The company’s thoughts about the blockchain were, “Blockchain might work for us, but we are not ready to deal with crypto.” Today, five years later, one of the Big Four executives (and my good friend) has developed a new Hong Kong-based booming cryptocurrency with the whole Big Four community, making every effort to keep up with the times.
People changed their minds. They started to see the prospects of blockchain and its enormous potential in various businesses. Digital ledgers stopped being the latest innovation, giving space to blockchain technology that is finally seen as a real tool to solve many issues in socio-economic and other sectors. It all suddenly became clear to many brilliant minds in finance. Even hackers from the Occupy Wall Street protests worked with cryptocurrency and used blockchain technology. Modern problems require modern solutions, as they say. Here was the solution born.
Taking Over the Banking Sector
Due to the coronavirus pandemic, the inflation level in many countries has risen dramatically as governments print more banknotes. The US central banking system is facing extreme complications with a first-in-history balance sheet exceeding $5 trillion and federal debts beyond $25 trillion this year. It is the first time in this decade that the American economy has experienced such challenges.
Now is the time for major shifts in investing. New money is printed every day, making traditional investors reconsider their investment strategies. Currencies that are not controlled and, therefore, cannot be printed in any volume by state banking systems represent special value for modern-day investors. Investment managers find it difficult to ensure proper returns to their clients in present conditions, so more and more asset specialists offer cryptocurrencies as an alternative.
“Soon, everyone started talking about blockchain, but very few expressed any desire to dive deep.”
As Fidelity Digital Assets’ research shows, the number of institutional investors who consider digital assets to be a necessary component of their investment portfolio is growing rapidly — something I knew would happen from the very beginning of my relationship with crypto. The research demonstrates that around 288 out of 800 investors in Europe and the USA diversify their portfolios with crypto assets, while more than a half believing that it is possible that they will do so in the near future. As the report lays out, the main reason why this asset class represents a value to investors is that it is not dependent on other assets. Apart from that, a quarter of investors from Europe highlight that crypto’s independence from governmental control plays a major part in their choice to invest in it, while only one-tenth of American investors find this characteristic critical.
Classic investors and investment managers who operate with the money of their clients and companies tend to fall back upon investments that have governmental regulations and institutional support with designed infrastructure to ensure the security of such investments. Historically, national banking systems represented insurance for many alternative asset classes, such as valuable metals, equities, and real estate, let alone cash. Now that the world’s financial canvas has turned towards crypto, banks are trying to keep pace and expand their custodianship in this way.
For example, more than forty banks in Germany expressed a desire to provide custody for digital assets once it became legally possible. Since then, the number of applications for custody licenses has been growing. In other countries, such as Switzerland, banks have developed a special infrastructure to support transactions in crypto, as well as provide various retail services in digital currencies. Many investors are unsure about the security of crypto investments and require them to be institutionally regulated, in response to which some European banks have started designing special norms and regulations to find a solution. It all comes down to crypto-asset custody becoming a regulated option in the near future.
Fiat or Crypto?
A few years ago, the convergence of the crypto industry and the traditional banking system was met with its fair share of criticism. For example, when one of the most famous crypto exchanges, Binance, announced that it had opened a bank account, the reaction was very uncertain. Today, similar announcements made by exchanges such as Coinbase are more welcomed than previously.
Most well-known exchanges, such as Coinbase and Binance, offer their customers the option to exchange both crypto and fiat currencies. Users can make deposits or withdraw in fiat, which presents no complications or additional costs. These opportunities come to life with the help of either traditional bank accounts backing the system or virtual accounts with electronic money. These solutions provide additional security guarantees for crypto holders because they protect users from using outside payment systems that may be scams. Apart from that, it lowers the expenses and makes the system more transparent for regular customers.
The merging of the crypto and banking worlds is becoming a new tendency in the field of financial services. Banks around the world are becoming closer to the crypto industry to be in the spotlight of modern-day investors. Developed economies’ governments are also paying attention to the growing popularity of crypto and, more importantly, seeing its potential not only for private businesses or individuals but for the national financial system, as well. States are trying to develop and implement policies and regulative instruments for crypto to legally enter the financial world. New payment systems have been developed and implemented across the European Union that facilitate money movement and give access to a broader variety of services.
“Satoshi Nakamoto’s idea of an easy P2P flow of electronic money has served as a huge source of inspiration for drastic transformations and brand-new approaches to money as a value carrier.”
As a result of the growing demand for digital assets, many businesses have started to implement digital financial technologies in their everyday operations, especially in the financial sector. Those who have been dealing with payment systems and everything related to the funds’ movement have to adapt to the new era of crypto or leave. They simply don’t have another option. Thus, some companies that offer banking services have implemented technologies that allow users to buy or sell crypto assets via a mobile application. Some companies have developed applications that allow trading crypto as equities or securities. Companies are trying to offer combined services where a customer can choose between fiat and crypto, with both options easily integrated and accessible. This new tendency is surely going to become mainstream.
Satoshi Nakamoto’s idea of an easy P2P flow of electronic money has served as a huge source of inspiration for drastic transformations and brand-new approaches to money as a value carrier. It could have been triggered by the financial crisis of 2008, when many people reevaluated their idea of money, but today it has transformed into a new direction for the financial world to take.
The new model of carrying and exchanging value traditionally represented by fiat money is undergoing a real revolution of ideas and perceptions. Soon, crypto assets and traditional fiat payment systems won’t be separated so dramatically. They will be an integrated network with greater choice and wider access to all types of existing assets, letting crypto take its stand in the global financial arena.
