I love you, me neither: Why are banks interested in Bitcoin today?

Since its debut in 2009, Bitcoin has received mixed reactions from banks and financial institutions. However, over the years, positions soften and banks are increasingly inclined to invest in Bitcoin. In any case, this is what the recent submissions to create Bitcoin ETFs from banks and investment funds tell us (Blackrock, Fildelity, etc.).

Whether it's the SEC, central banks or even governments or IMF, positions have fluctuated over the years. This change in perspective is unexpected to say the least because – due to its decentralized nature – Bitcoin is a currency that can do without banks. It would have been difficult to think that a decade after its creation, banks would be so interested in an asset that was supposed to put them out of business.

What prompted such a change of position? What are the banks' real motivations? Does this pose a danger to the philosophy of Bitcoin?

This is what we will try to answer here, by shedding light on the historical course of relations between banks and Bitcoin.

Introduction to Bitcoin and its relationship to the banking industry

If we study in broad terms how Bitcoin works, the first conclusion that emerges is that it is diametrically opposed to banks and the traditional banking system.

Here are the elements that oppose Bitcoin and banks:

1. Centralized control : Banks operate on a centralized model where they act as trusted intermediaries and control all customer transactions and funds. In contrast, Bitcoin is designed to eliminate the need for an intermediary, allowing users to take complete control of their funds and transactions. The title of Bitcoin’s white paper is “A Peer-to-Peer Electronic Cash System.” The term “peer-to-peer” refers to the idea that users can use it directly, without the need for any intermediaries.
2. Confidentiality and transparency : Traditional banks must comply with privacy and anti-money laundering regulations. This involves the collection and disclosure of customers' personal information. Bitcoin, on the other hand, offers some form of anonymity for users, allowing pseudonymous transactions without disclosing personal information.
3. Fees and deadlines: Banks often charge fees for various services, such as transfers and currency conversions. Additionally, transactions between banks can take time due to clearing systems and regulatory controls. In comparison, Bitcoin transactions can be faster and may require generally lower fees because they eliminate traditional intermediaries.
4. Censorship and control : Banks have the power to block or limit transactions based on various factors, such as government regulations, internal policies, or suspicion of illegal activity. Bitcoin, as a decentralized network, is designed to be censorship resistant (censorship resistance) and allow unrestricted transactions, as long as the rules of the protocol are followed.

For all these reasons, Bitcoin appeared to banks around the world as a direct threat that could call into question their effectiveness and even their legitimacy.

However, after considering it as a threat, changes in mentality gradually took shape and we could see an ever greater attraction on the part of banks. Here's how it went down.

A rejection of Bitcoin and growing interest in blockchain

It seems that banks became familiar with the concept of decentralization when new cryptocurrencies appeared. Having known founders (unlike Bitcoin), a defined legal structure (unlike Bitcoin once again), cryptocurrencies appeared to banks as harmless currencies.

So, what was retained is not bitcoin as a currency, but the very substrate that constitutes bitcoin, namely the fact that it is a "cryptocurrency".

The emergence of new cryptocurrencies such as Ethereum has caused the market capitalization of the crypto industry to explode. Initial Coin Offerings (ICOs), which are unregulated fundraising, made it possible to raise millions of dollars during the year 2017. Such a mixing of dollars naturally attracted investment funds which were the first financial institutions wanting to take a share of the market.

Being closely tied to banks, it seems that the first bridge between them and Bitcoin was built in this way. Banks then realized that they could miss out on lucrative opportunities if they continued to “deny” cryptocurrencies.

From there, reading about what Bitcoin is seemed much more interesting for banks. They found a new area of ​​opportunity and the ultimate opportunity to evolve.

What are the advantages of Bitcoin for banks?

Banks have realized that they have a lot to gain by integrating Bitcoin into their operations. Here are the main advantages that banks have in integrating cryptocurrencies:

First of all, Bitcoin can help banks reduce operational costs. Bitcoin transactions are much cheaper than traditional transfers, which can save banks millions of dollars each year.

Second, Bitcoin can improve the efficiency and speed of transactions. Bitcoin transfers can be completed in minutes, while traditional transfers can take several days. This can be particularly beneficial for cross-border transactions, which are often slow and expensive.

Finally, Bitcoin can offer new business opportunities for banks. This is certainly the tipping point that allowed banks to become interested in Bitcoin. By integrating cryptocurrency into their services, banks can attract new customers and position themselves as innovators in the financial sector. Bank customers can benefit from greater diversification of their investment portfolio by including digital assets, as well as the ability to make faster and cheaper international transactions.

What are the obstacles and risks associated with the adoption of Bitcoin by banks?

Although Bitcoin has many potential benefits for banks, there are also challenges and risks to consider.

One of the main reasons why banks initially rejected Bitcoin is the lack of regulation and oversight in the cryptocurrency industry. Although there are more and more of countries adopting a tolerant policy towards crypto-assets, fears related to money laundering, terrorist financing and other illicit activities have made banks reluctant to engage in this area. Likewise, banks are not immune to a change in law which would disrupt the use and holding of cryptocurrencies.

Another challenge arises when it comes to the volatility of Bitcoin because the price of Bitcoin can fluctuate considerably in a short period of time, which can make it difficult for banks to manage risks. However, it should be noted that the volatility of the bitcoin price tends to decrease over time.

Finally, there are concerns related to security and privacy. Although blockchain technology offers increased security, there are still risks of hacking and Bitcoin theft. Banks will therefore need to invest in robust security measures to protect their customers' assets. For this, banks must establish technical infrastructure to support Bitcoin transactions. This may include installing secure Bitcoin wallets, developing Bitcoin-compatible payment systems, and training staff on the technical aspects of Bitcoin.

Which banks have adopted Bitcoin?

Despite the challenges and risks, more and more banks and financial institutions have started to explore payment solutions or services related to cryptocurrencies. The list continues to grow and financial instruments such as Bitcoin ETF are currently in process.

Unsurprisingly, it's in one of the most crypto-friendly countries whoever is, namely Switzerland that we find the first banks to have adopted Bitcoin. We can cite Falcon Private Bank and SEBA Bank which were among the first to offer cryptocurrency management services to their clients.

Among the banks that are most enthusiastic about adopting Bitcoin and cryptocurrencies, we find neo-banks like Revolut and Bitwala.

Recently, the largest asset management company, BlackRock filed to create an ETF, followed by Fidelity Investments and the list continues to grow.

Aren't banks coming to "destroy" the concept of Bitcoin?

The change in attitude of banks towards Bitcoin and cryptocurrencies is paradoxical at first glance. As little as we know the philosophy of cypherpunks, which is at the origin of the creation of Bitcoin, it may surprise to know that bitcoin is on the way to becoming a financial asset pampered by banks.

Should we be outraged? Should we fear for the future of Bitcoin? It will depend on each person's philosophy. The most purists when it comes to the concept of Bitcoin may be saddened by such monopolization by the banks. With banks, buy a Bitcoin ETFs or an Amazon share, would basically amount to the same thing...By adding a speculative dimension, traceability in transactions and control ofestablishment, this somehow destroys what makes Bitcoin great and original.

For others less sensitive to the Bitcoin ethos, this may be a good thing because it limits the possibilities of Bitcoin. By relegating it to the "financial asset" box, Bitcoin will be less used for money transfer operations and will therefore be more user-friendly and more "servile" for governments.

We can then legitimately wonder if this enthusiasm for banks towards Bitcoin is not a subtle strategy to try to increasingly reduce its impact?

If such a Machiavellian plan is underway, it must be remembered that the Bitcoin protocol will remain unscathed if users continue to use it directly, without going through banks and various financial instruments. This is again where everything is at stake, because we must not forget that if banks seem to "like" bitcoin today, the reverse is not entirely true...