Crypto exchanges welcome traditional bank relationships

Relationships between cryptocurrency institutions and traditional banks will bolster crypto’s legitimacy, market participants predict.

“It appears the reputable, blue chip coins finally have a hard-won place in the mainstream. Institutional grade exchanges finally being accepted into the old boys’ club will do wonders for public perception of credibility of crypto,” said Katharine Wooller, managing director, UK and Ireland for crypto exchange Dacxi in an email, speaking on the news that JP Morgan will open bank accounts to crypto exchanges Coinbase and Gemini.

JP Morgan will provide cash management services to exchanges, similar to its relationships with corporates, the Wall Street Journal reported on May 12. The bank and Gemini declined to comment on the matter, and Coinbase did not respond in time of publication.

According to Wooller, traditional financial institutions are having to rethink their historically disparaging stances on cryptos and crypto institutions as they gain more credibility. This shift in attitude is present in JP Morgan, who in 2019 said it was supportive of cryptocurrencies as long as they are properly regulated.

“Crypto exchanges have long had a fractious relationship with the banking titans fuelled on the one side by deep fear of what they don’t understand, and the other by a need for traditional banking structures made available to crypto businesses. On both sides there has been a sense of one eating the other’s lunch,” said Wooller.

Crypto exchanges and other market participants believe public perception of cryptocurrency will be influenced by relationships with large banks. Another impact is the response from regulators.

“As the major financial institutions adapt, this in turn will force regulators to harmonise their approach to crypto,” said Stephen Stonberg, chief operating officer and chief financial officer, crypto exchange Bittrex Global in an email.

“This will also separate the bad actors, such as those which are unregulated, from the regulated and law-abiding exchanges, meaning that the larger financial institutions will not have dealings with the unregulated players.”

Coinbase and Gemini are regulated exchanges.

According to Frank Zhou, chief executive, crypto investment app Zeux, although cryptocurrencies are technically independent of banks and policymakers, they are still affected by the traditional financial system.

“The future success of digital currency in this case still largely depends on a coordinated approach with global parties, to enhance the stability of the digital system and confidence from the market,” said Zhou via email.

While JP Morgan’s relationship with Gemini and Coinbase is a positive step towards gaining credibility, public trust remains an issue.

“The viability of digital currencies shows a potential of reinventing a parallel financial system to the traditional finance, however at the current stage, cryptocurrencies have many characteristics of a speculative instrument and have a small ability to compete with the credibility of banks. Having the backup from large banks fills the appetite of crypto exchanges and helps gain trust from customers.”