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US Banks Can Offer Crypto Custody Services in 2021

Fri Jan 15 2021 09:33
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The Govt has good news for both crypto-investors and banks seeking growth opportunities. The demand for digital assets is growing in the US and the authorities are taking an interest. The govt has said that they can now offer custody over cryptos also. 

This is a big move from OCC to allow banks to now deal with cryptos and gain more customers. The whole world is seeing the massive growth of cryptos from that past year, and the govt is also aware of this.  

To turn this trend into a business opportunity, guidance from the OCC says that national chartered U.S. banks can now deal with cryptos. Like traditional finance custody, banks can now enter into virtual-asset security to step up towards the future.  

The Office of the Comptroller of the Currency gave this update in their newsletter for all the national banks and associations. As per the letter, now the banks have the power to provide custody services for cryptos by holding encoded keys of the clients. 

This is a business opportunity 

Virtual assets are growing like nothing else and everyone knows that they will stay with us. Banks will act as a system to provide facilities to their clients who want to send, store, or withdraw in cryptos.  

The IRS will treat these cryptos as an asset which are of high risk and volatility. For ownership, crypto owners need to store their keys which are unique in physical format. And, the banks will keep these physical keys safe in their security protocols.  

This decision is more of a profit for banks as they have a new income stream from both existing and new customers. Banks already have good authority and it will help them in gaining more deposits with ease. 

Cryptos might be new to the fiat banks but it's a stable income source and that's why more banks think to take part. With the government's approval, financial bodies have now more confidence in this model. 

In the early days of bitcoins and other digital assets, no banks had the interest to know about the new currencies. And now, when the Govt has a blueprint to manage cryptos, many institutions are showing interest. But, this is approval and the actual hard work begins from here.  

Hard Work Begins For Banks 

With the approval, banks know that they don't have any plan to manage the digital assets. To date, banks' officers are experts in managing physical securities, bonds, and cash. But for the safekeeping of virtual entities, they need a scalable plan.  

Now, banks need to produce new systems to manage these assets and train their staff to know the vital things. To learn how these things work, the bank officials will need time and hands-on practice. To master the complex functions of cryptos, they will need to seek help from other sources. 

Both retail and institutional clients will have various needs and banks should be able to fulfil all. No doubt, with the prices of these assets rising, it's a tough duty for banks to manage in an efficient way. Below are some challenges that banks need to fix for better crypto services for customers: 

Speed to adopt 

Coming to cryptos, players like Coinbase are ruling the market with digital custody. Banks will need to pace up their training and systems to match and compete with these players. To win at this service, financial bodies will have to offer more competitive prices. This is the way to attract the customers of Coinbase and other crypto custody providers. 

But with the institutional customers, banks have a leading edge over the others. The trust metrics of banks are already very high and to keep big crypto amounts, banks are safer than firms.  

Technology Training 

All the cryptos like bitcoin, ripple, and more have their foundation on the blockchain. This distributed tech is very popular among many sectors and it's also very efficient. But, the problem with banks is that only a few people know about these tech platforms.  

So, the financial bodies will need faster training to compete in the market. The best options that they have is to hire blockchain training companies and learn. Also, as banks need to cater to other customers with their core services, time slots issues will be there.  

Risk Management 

Like other fiat currencies, cryptos do have risk and even higher than normal currency. As of now banks only have protocols to manage physical assets not digital ones. So, drafting new working guidelines and set protocols will be a challenge. 

The high volatility of cryptos and the anti-money-laundering will be major management tasks for the banks. With growing technology, crimes are also on the verge, and dealing with them will be new for banks. In risk management, banks need to prove their mettle like private players.  

Cost of new custody arrangements 

After knowing the benefits, the cost is something that no one can ignore for banks. Be it training, new protocols, new staff, powerful computing, or security, the cost is higher. But, many experts say that cryptos are the future and the upfront cost is easy to recover.  

So, even if banks decide to invest heavy amounts in their upgrade, it will be worth it in a long time as it will go popular. As banks will get recurring pays from customers and it will help them maintain liquidity.  

Right hiring at banks 

All the private crypto players have very CEOs and CTOs that have years of knowledge in the blockchain. But here with banks, they will need to on-board blockchain persons to handle the new work. 

But, it's only a temporary hurdle and banks can manage it with ease. Once the process begins from the banks' end, more people will start using the cryptos and this is the future.  

Banks' Planning on Cryptos 

As per some experts, banks' security will be more robust than the third-party crypto companies. Banks will use their cold wallets to store cryptos and the secret keys of the clients. In this process, the officials will keep the cryptos keys on offline devices that are safer. And, these devices are easy to store with higher safety in the traditional banks' vaults. 

Along with this, banks are also planning for more security for their clients in the upcoming time. As banks are high-trust financial bodies, customers are willing to pay more to use their services. In the upcoming time, more customers will opt for banks' custody services due to growing crypto demand, said an official.  

Officials in the OCC letter said that banks have also noted the growing need for new finance systems. So, banks are willing to adopt new tech faster and help customers with their crypto needs. 

Summary 

This move of the US government for cryptos will bring a positive change in the system. With this advancement, banks will be able to attract more high-paying customers. This is a golden situation for financial institutes and customers both and it will transform the current banking system.

 Once the banks figure out the implementation phase, the execution will be easy with new teams. As the cryptocurrencies trend is here to stay with us, banks are in huge profits in the long term 
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