Looking at the state of the blockchain in 2018, we have to ask ourselves – is crypto banking the unbanked or unbanking the banked?
Following the incredible bull run of 2017, which attracted unprecedented attention towards Bitcoin and other cryptocurrencies, 2018 was marked by an equally forceful regulatory backlash. While Bitcoin remains legal in most OECD jurisdictions, the crypto market and its participants are being increasingly penalized for using the digital assets of their choice.
In some countries, including blockchain industry hubs such as the USA and Israel, banks may block users’ access to their fiat bank accounts if they deposit liquidated funds from crypto exchanges and trading venues. This has led to a situation in which vendors that used to accept Bitcoin have backpedaled from their decision to do so, in order not to jeopardize their businesses.
These draconian measures are not always government led, but originate in most cases from the unwillingness of banks to serve their clients according to their needs. Financial institutions will often cite Anti-Money-Laundering guidelines to justify their actions. Although tracking Bitcoin and most cryptocurrencies is much easier than tracking cash, most banks will treat them as untraceable “dark money” and refuse to come anywhere near them. If this is due to a lack of understanding, fear of competition or good-old laziness remains anyone’s guess.
However, 2019 might be the year in which all of this changes. Regulatory uncertainty, an uncooperative banking sector, and shady, fragmented institutions dominating the crypto market, have created a huge demand for a clean, compliant, and consumer-friendly solution that is willing to fill the gaps left open by the current financial establishment.
In fact, the first outspokenly crypto-facing bank has already been incorporated and licensed. EQIBank plans to open its first private and corporate accounts in December 2018 and will allow its customers to hold cryptocurrencies in insured accounts alongside international fiat currencies. The bank will also operate its own in-house cryptocurrency exchange and offer a peer-to-peer crypto-loan system.
As an offshore bank, regulated under international standards, EQIBank will be the first official point of contact between crypto markets and the international financial system. However, it will probably not be the last. Several small European banks have already partly joined the crypto bandwagon and are seeking to incorporate Bitcoin holdings into the service packages provided to their clients.
Since the blanket prohibition on crypto originates more from the decisions made by established banks than by regulatory oversight, these new small players have a true chance to capture a significant market share. There are currently thousands of legitimate businesses and individuals seeking well-deserved banking services. If the ‘old boys’ club won’t provide them, apparently someone else will.
With the cartel-like dam suffering its first cracks, the flood is imminent. Established banks will not waste much time and will fight back to regain some of their lost market share. We should not be surprised if financial institutions suddenly flip 180 degrees and declare the blockchain as the best AML tool ever developed (which it indeed is). This will probably not happen overnight, but soon enough to declare 2019 as the year in which crypto finally gets connected to the global financial system.