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“Mica is a validation of the crypto-asset market”

Banks tried to put a stop to bitcoin, but they failed. So they took it. It is on this observation that the independent financial journalist specializing in digital assets François Remy signed the book “How Banks Kidnap Bitcoin” at Chronica Editions. During a meeting with Paperjam, the author explains his approach: “Documenting and gathering the data that involves the trend that some call the ‘bitcoinization’ of the banking industry or the ‘Wallstreetfication’ of cryptocurrencies.”

Yet many banks are still genuinely wary of cryptocurrencies. This is evidenced by the compliance policies of some of them which still prohibit transactions from and to cryptocurrency exchange platforms. “It’s a paradox. The pro-cryptocurrencies speak of schizophrenia of finance”, underlines François Remy. He recalls that banking institutions are however eyeing the technological properties offered by cryptocurrencies, both in terms of the search for efficiency and the traceability of financial flows. So many useful features for compliance teams, for example.

The blockchain, the underlying technology of cryptocurrencies, is increasingly seduced by the financial industry. “In view of all the major technological themes of the industry, the signal is for tokenization”, observes François Remy. And he adds: “All the piping of the financial system, which is intermediated and regulated as much as possible, experiences energy and efficiency losses in many places.” Quite naturally, financiers are embracing cryptocurrency technology, allowing for lower costs, increased efficiency and reduced transaction times. “Banks are taking advantage of this to catch up on digitization.”

Banks are taking advantage of this to catch up on digitization.

Francois Remy, journalist and author

Customer pressure

Beyond technology, many players have quickly heard the growing demands of part of their clientele. Based on discussions with private bankers, François Remy recounts the embarrassment of certain professionals: “They had clients who saw the possibility of achieving very high returns in less than a week with cryptocurrencies and who therefore thought of allocating crypto-assets to their investment portfolios.” This in a context of savings that are melting into bank accounts and stock market returns that are struggling to convince. On the other hand, “we see cryptocurrencies that outperform, so we want them”, justifies the financial journalist.

This is without taking into account the competition led by well-defined neobanks and fintechs, which has begun to invalidate the reputational risk of cryptocurrencies put forward by traditional banking players. Revenge of history, François Remy even considers that the banking institutions have turned the situation to their advantage: “We now observe that banks have appropriated cryptocurrencies by playing the trusted intermediary for these cryptocurrencies which have a bad reputation. »

If the central banks, that is to say the historical actors of the currencies, did not react, it is then that the technology would not be interesting.

Francois Remy

Francois Remy, journalist and author

While the financial industry is now making its way through the world of crypto-assets, the latter is now facing a new reef: central banks. Comparing the crusade of central banks against cryptocurrencies to the concern of postal companies during the birth of e-mail, François Remy perceives a source of opportunity. “If the incumbent central banks, the currency players, did not react, then the technology would not be interesting.”

Central bank competition

While central banks were also lagging behind in terms of technological transformation, most of them were now developing their respective centralized digital currency projects. In response, “commercial banks are directly concerned”, points out François Remy. Quoting Morgan Stanley investors in 2021, he explains that total deposits in the euro zone would fall by 8%, or 873 billion euros, if all citizens over the age of 15 transferred their money to wallets controlled by the Before our era.

So is the business model of commercial banks under threat? Even if a vagueness still reigns, centralized digital currencies being developed in the muffled, François Remy expects “an ongoing technological tsunami which will have consequences on our banking system, even on a personal basis for the citizen”. This is pushing certain banking institutions to develop their own payment systems, based on stablecoins backed by the dollar or the euro.

If today we have a 400-page regulatory document, Mica, it is in a way a validation of the crypto-asset market.

Francois Remy

Francois Remy, journalist and author

Despite the revolt of concerned bankers against cryptocurrencies, François Remy expects that the worlds of centralized and decentralized digital currencies will be asked to coexist. As proof of this, the planned adoption in 2023 of the Mica regulation governing the crypto-asset industry. “If you have a 400-page regulatory document today, Mica, it’s kind of a validation of the crypto-asset market.” Consumer demand for crypto-assets is now a reality that regulators must deal with “by offering investor protection and taxing all of that”.

This article is from the Paperjam + Delano Finance newsletter, the weekly meeting to follow financial news in Luxembourg. You can subscribe by following this link.

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