If Bitcoin is such a “big deal”, why are banks and organizations not using it, you might ask. It’s actually already happening.
Bitcoin has had a steady stream of adoption in recent years, as it slowly matures and becomes more secure (in market cap terms). It is no longer considered an unwelcome risk, for banks to adopt cryptocurrencies. On January 4th 2021, the U.S. Office of the Comptroller of the Currency (OCC) approved American banks to use public blockchain networks. Whether you are new or old in the crypto space, this is great news for the future of banking.
In recent years more people are starting to use mobile banking and investment solutions like Cash App (30 million users) and Revolut (12 million users). More than ¾ of Americans used a mobile device to check their bank balance in 2019, and 6,93% of millennials used mobile banking in 2019(1).
It is no surprise that the easy-to-use banking solutions are tightening the grip on the world’s population. But why are these services suddenly involved in cryptocurrencies like Bitcoin? Well, as demand for these decentralized currencies are increasing, it makes a lot of sense for them to implement a buy and sell option for these currencies. Now the transfer of wealth isn’t limited to your family and friends, or grocery shopping – you now have the option to send money to relatives abroad without using a slow bank transfer.
The appeal to Bitcoin isn’t just coming from retail investors, big institutions are starting to see the appeal of having digital gold stored with their service. This is exactly why the OCC approval of Blockchain technology is great. As banks have started to see competition from companies providing bank-like solutions and high-interest earnings on cryptocurrencies, they have been held back by being unable to provide a service that their customers have asked for, until now.
Another obstacle for commercial banks, has been the issue of cryptocurrencies being subject to arbitrary regulation and the general notion that Bitcoin is a high-risk asset (that nobody really wants). Banks have been proven wrong, with the capital inflow to PayPal, Cash App, Revolut and banking solutions like BlockFi.
You are probably familiar with the before-mentioned services, except for BlockFi. So, let me describe what it’s all about.
BlockFi was founded in 2017 with a headquarter in New York – the state known for its tight regulations on crypto trading. After a few years of funding rounds, they opened their service in 2019, offering loans to interested in borrowing crypto. Since then, more than 650 million dollars have been deposited with them, coming from retail, corporate and institutional investors. This is obviously a large amount of cash to trust with a single company, so why are these people doing it?
Crypto-backed lending and BlockFi Interest Account (BIA); are the two main reasons for the growth of the company. Customers are able to keep their cryptocurrencies on BlockFi for a % APY on certain assets. Bitcoin as of now, has an interest earning rate of 6% APY and stablecoins such as USDC a whopping 8,6%!
Any amount of cryptocurrency stored with BlockFi can also be used as collateral for a fiat loan. You’re able to take a loan up to 50% of your portfolio value. This is ideal for “hodlers” not willing to sell their crypto, but want some money – the loan’s interest rate is a competitive 4,5%.
Many other companies like Crypto.com and Fold, have promoted a visa debit card with cash-back rewards in Bitcoin, which has been in high demand. But a key difference, is that BlockFi has become the world’s first Visa credit card provider, with a cash-back of 1,5% in Bitcoin. So, in reality cryptocurrencies aren’t about creating a new system of payment, but complementing the existing financial payment structures.
This is the future of banking, blockchain technology and cryptocurrencies merged with commercial banks. A revitalization of the banking structure, so to speak. When banks are threatened with losing customers to bank-like services providing interest earnings and satisfying an increasingly popular demand for cryptocurrencies, they are forced to act. In the coming years, it would not be surprising that you are able to store your cryptocurrencies with your local bank.
