Banking on Crypto


This column continues to follow the money into crypto, as large U.S. financial institutions made more product announcements and investments in cyptocurrency investment and custody services. It also follows the larger trend of banks increasing their strategic investments in FinTech.

Enterprise banks ramped up their interest in digital assets this week with project announcements and milestones. They underscore how banks work with FinTech firms to provide solutions that build around the edges of disruptive technologies.

A quote from “Revenge of the Winklevii,” a Forbes article on billionaire bitcoin investors Cameron and Tyler Winklevoss and their Gemini exchange provides the context. “Blockchain, the technology underlying Bitcoin and other cryptocurrencies, is already disrupting money and banking, as giant financial firms such as PayPal, Square, JPMorgan, Fidelity, and Northern Trust embrace Bitcoin and jockey for position in a future awash in digital assets.” (The article also provides great examples of NFTs and how they work through the story of the twin’s Nifty Gateway.)

This week, Gemini announced a crypto rewards credit card issued through Mastercard and WebBank. Meanwhile, Silvergate Bank, the industry’s leader in digital assets, announced that it has supported more than $50 million in loans backed by bitcoin as collateral from cryptocurrency exchange Bitstamp. The loans are made through Silvergate’s SEN leverage product.

For its part, JP Morgan joined Singapore-based bank DBS and investment firm Temasek holdings in a project to digitize commercial bank money. The project is as notable for its origination in Singapore, which is also the base for Northern Trust’s support of fractionalized bond trading exchange BondEvalue.*

The JPM-DBS-Temasek project will develop an open industry platform that sounds like it will use a digital token-based system for payments, trade, and foreign exchange settlement for any institution that decides to join. This will be done through a newly formed company called Partior, Latin for “share, divide, distribute.” The press release language has everything you’d expect to hear about an enterprise blockchain-technology solution.**

Partior, however, is based on a long (at least for blockchain-technology) history of research and experiments in central bank digital currencies conducted through the Monetary Authority of Singapore. Partior draws on the MAS’s Project Ubin, a five-phase series of digital currency projects that started in 2016 and included pioneering work with the Central Bank of Canada.

“The launch of Partior is a global watershed moment for digital currencies, marking a move from pilots and experimentations towards commercialisation and live adoption,” said Sopnendu Mohanty, chief FinTech officer, Monetary Authority of Singapore.

I believe him. The announcement lends additional credence to Singapore’s position as a hub of regulated digital asset innovation.

In the United States, cryptofinance activity focuses on investments for institutional and high net-worth individuals. US Bank summarized three recent cryptocurrency offerings last week:

  1. a cryptocurrency custody product
  2. an investment in Securrency, a blockchain-technology developer
  3. a deal to administer NYDIG‘s ETF bitcoin fund, should it pass regulatory muster.

(NYDIG reportedly is the custodian for the US Bank product. The bitcoin investment firm partnered with Quontic Bank on a bitcoin rewards checking account in December 2020.)

In keeping with most U.S.-based bank digital asset products and solutions, US Bank is using a separate FinTech firm to handle bitcoin and digital assets themselves, keeping them off its balance sheet. And US Bank’s press release hit all the right crypto notes for a wealth-management bank.***

The investment firms have no such worries, as Andreessen Horowitz announced its plans for a $1 billion cryptocurrency VC fund.

* (Northern Trust’s partnership with Standard Charter bank, as well as Fidelity’s partnership with digital asset lender BlockFi, are detailed in an American Banker article on financial institutions managing crypto assets.)

** “Partior recognises the need for more efficient digital clearing and settlement solutions across the banking industry, and targets to address these challenges through the use of blockchain solutions to enable next-generation, programmable value transfer for participating banks and their clients in real-time across a common and open platform.”

*** “Recent acceleration of investor interest, market adoption, and regulatory guidance opens new opportunities for banks to “continue satisfying their customers’ needs for safeguarding their most valuable assets, which today for tens of millions of Americans includes cryptocurrency. And, we’re taking an approach that ensures proper risk management and controls are in place to effectively offer these types of products in a safe and secure way.”

– Collin Canright