Increasing Interconnectedness
The growing trend towards greater interconnection between traditional financial institutions (FIs) and the crypto industry underscores a shift in how these sectors are interacting. Traditionally, FIs were seen as separate from crypto firms; however, digital assets companies have increasingly adopted practices once exclusive to banks. For instance, companies such as Bitgo, Coinbase, and Circle have even considered pursuing bank charters in the U.S., which would allow them to offer loans and accept deposits.
Moreover, Circle has announced plans to launch a cross-border payment network designed to rival global payment giants like Visa and Mastercard. This initiative highlights the crypto industry’s ambition to integrate more deeply into traditional financial systems.
Increased Investment in Digital Assets Technologies
As crypto firms expand their operations, there has been a corresponding rise in investment from FIs in digital assets technologies. For example, the efficiency and security provided by blockchain technology have made it an attractive candidate for mainstream financial services, including beyond just cryptocurrencies.
The potential of tokenization, which involves converting real-world assets into digital tokens, is gaining traction among financial institutions. Tokenization can streamline processes that are currently manual and costly, enhancing overall operational efficiency.
Stablecoins have also become a focal point for many financial companies due to their stability compared to volatile cryptocurrencies. This led payment giants like PayPal to launch PYUSD, Stripe to develop its own stablecoin solution, and Meta to consider entering the stablecoin market as well.
Acquisitions and Investments in Crypto Companies
Financial institutions are not only investing in these technologies but also acquiring or partnering with crypto companies. Stripe’s ability to launch a stablecoin, for instance, was made possible through its $1.1 billion acquisition of Bridge.
A notable early example is Goldman Sachs, which made a significant investment in Bitgo seven years ago, signaling the growing interest from traditional finance players in the crypto space.