Any banks curtailing crypto could face some unintended consequences
Special Report: With institutional interest in crypto reaching dizzying new heights in the US, plans by banks to curtail cryptocurrencies are set to bring with them a whole lot of turmoil.
Most people would be repulsed by a ‘big brother’ dictating where and how they should transact. Outside of harmful and illegal activities, what they do with their money has largely always been up to them.
This right extends to alternative assets like cryptoassets. Far from a passing fad, financial giants, including Blackrock, Fidelity, Citadel and Charles Schwab, have signaled their intention to broaden their financial services by offering clients exposure to cryptoassets.
If there was ever a signal that crypto has gained the ultimate institutional buy in, this might be it.
Despite not dominating crypto news, Australia stands out as a significant adopter of cryptoassets: According to the ASX, 1 in 3 millennials – and a quarter of Australians overall – now own at least some crypto.
The undeniable truth is that people want to own crypto, and they should be given the liberty to make this choice.
Recent actions taken by banks to limit and, in some cases, outright deny transfers to crypto companies go against this ethos.
These broad-based measures, while designed to curtail illicit activities and malicious scams, are the wrong approach to tackling the problem for several reasons.
Most importantly, crypto related scams only account for a fraction of the overall financial fraud picture.
The ACCC estimates $3.1Bn in scams occurred last year, $221.3m of which used cryptocurrency as the payment method.
Scams occur in many forms across a variety of industries but the silver bullet isn’t to shut off access to an innovative technology.
If we had adopted this approach during the emergence of the internet billions of people would not have benefited from the democratisation of information.
For this reason, blanket solutions will effectively make a current account service provider the new gatekeeper to this inclusive financial technology.
Banks should not be the gatekeepers of transformative technology. There are many reasons why: it establishes an unwanted precedent that impedes fair and transparent access to cryptoassets.
Moreover, it creates concentration risks among a select group of ‘sanctioned players’, fostering an uneven playing field.
Finally, they’re built to mitigate risk and be cautious adopters of technology – not innovators. There are very good reasons for this.
Conversely, the crypto community’s greatest asset (and at times, its greatest flaw) is that it innovates and fails fast. Encouraging banks to become the effective regulator of crypto will not be a happy arrangement for either party.
The difficult truth is the fight against financial crime is a shared responsibility, not solely that of the traditional banking sector.
Collaboration between crypto platforms (like Kraken) and financial institutions is paramount. By maintaining open lines of communication, pooling resources, and investing in sophisticated monitoring technologies, we can more effectively combat malicious actors.
Perhaps the most potent weapon in our arsenal is education. By enlightening customers about the crypto landscape and general investment scams, we arm them with the tools to make informed decisions.
Knowledge not only empowers but also shields against a majority of scams and misdeeds.
Australia punches above its weight in the crypto industry. Our sector is one of the few that is genuinely global by nature and we have the right elements in place to continue being an integral part of the ecosystem.
If we aim to capture the economic benefits then we need to continue to commit to robust inter-industry collaboration between policymakers, traditional banks, and the crypto sector.
Crypto assets are now a part of our financial future. This journey towards a new era of finance will never be smooth or linear, but through a collaborative approach and an unwavering commitment to engage, iterate and innovate, we can ensure that progress never stalls.
Kraken is an agnostic exchange and discussion of assets is not an endorsement.
This article was developed in collaboration with Kraken, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.