Banks are a strange place to keep your crypto

As US regulators look more closely at the crypto world, it is likely that US banks will soon follow their larger foreign counterparts in offering retail customers the ability to trade and store digital coins. But why would one choose to invest through a bank instead of one of the big crypto exchanges like Coinbase? I can’t find many reasons.

Finding out the best place to buy and sell cryptocurrency is really of paramount importance to the investor. If having some sort of safety net to help you deal with unforeseen problems is a top priority, then investing through an authentic bank may be the best route. Although with most other measures, it is hard to see where banks offer any benefits.

Right now, cryptocurrency services are only offered by major US banks to high-net-worth and institutional clients, but that may soon change. Regulators are expected to provide more clarity this year as to what types of crypto-related activities will be acceptable. Despite bitcoin’s volatility and the current rough patch, it is reasonable to think that, with clear regulations, banks will jump in more aggressively.

For their part, consumers appear to be ready. A December 2020 survey by Cornerstone Advisors showed that 60% of cryptocurrency holders would certainly use their bank if it offered them the opportunity to invest in digital assets, and another 32% said they could. . Only 4% said they would not move on from the exchange they used.

Signals from regulators, along with legal precedent, indicate that cryptocurrencies will be treated as securities (not cash deposits) from a consumer-protection standpoint. This means that buying a virtual coin through a bank would be like buying a stock through a bank’s investment arm.

Hence it will not be covered by any type of insurance after market loss. But if there was fraud or a mistake on the part of the bank – say, a wrongful debit – the long-standing banking and securities regulations would help make customers whole. As of now, the cryptocurrency exchange is not subject to the same standards. The protocol for some of the larger exchanges has usually been to provide refunds in case of a system-wide hack or outage, but there are plenty of exceptions.

For rookie crypto investors, banks may be a more comfortable way to get started because of their familiarity. Supporters tout the ease of opening an account through a customer’s go-to bank, but that seems like a less compelling reason. Taking 15 minutes to upload a picture of a driving license and filling in some basic information, which most crypto exchanges require, is not that hard. And the perceived benefit of having a digital wallet linked to a mobile banking application so that a user can have all the accounts under one roof may be helpful, but not really paramount.

It is a mixed bag when it comes to security. Banks may have more experience in providing account security, such as multi-factor authentication, but exchanges will have more specialized expertise when it comes to cryptocurrencies.

For those most concerned about costs, banks fall short there as well. It is hard to imagine that a major bank would be able to charge a lower transaction fee than an exchange, where trading fees range from 0.1% to 1.5%. In order to get into the space and justify the additional costs of doing so, banks would have to charge more, especially in the early days, says Gabriel Hidalgo, who advises financial services firms on cryptocurrency.

As banks make tentative moves into cryptocurrencies, I expect them to offer only a few different types of coins (perhaps the most established ones) and potentially restrict movement between wallets. They can be a major turnoff for more sophisticated traders.

Remember, the whole purpose of bitcoin and other virtual currencies is to bypass banks. Banks’ transaction records are redundant when they have a blockchain. And their role as middlemen becomes obsolete when there is direct trade between buyers and sellers. Yes, when there’s a problem, the government requires banks to step in to protect your investments – and this may be the most essential service for some. But if you take that risk away, why are you buying crypto in the first place?

This story has been published without modification in text from a wire agency feed.