Recently, the development of the regulatory environment, the approval of Bitcoin ETFs and growing investor interest have positively impacted how traditional financial players view cryptocurrencies. At Dorsum, we have been building our knowledge base on the regulation, the technology, and the use of cryptocurrencies for years, with the aim of empowering interested market participants to understand the opportunities in this new asset class.
The road to cryptocurrency trading is full of challenges. Operators venturing into this field must deal with a host of issues such as regulatory compliance, complex integration and alignment with existing product portfolios. In this perspective, we would like to share our experience from discussions with stakeholders open to exploring this area.
Here are three key questions that most probably arise, during the path to implementation:
Where to start and what to research?
To begin, it is essential to assess internal competences: how well does the organisation know these assets? While many have a basic understanding of the asset class, few understand the blockchain’s functionality and architecture. We recommend conducting a quick GAP analysis to identify knowledge shortcomings. It is appropriate to ask what level of expertise your organisation needs to effectively implement cryptocurrency trading. We believe that a high-level knowledge of the architecture and core mechanisms of blockchain technology is essential to properly serving investment clients.
Understanding the needs of customers is also key; that includes gauging the demand for these instruments among customers. Some banks and investment service providers have younger clients looking for investment opportunities and would welcome the inclusion of cryptocurrencies in their offerings, while others may experience limited interest from their client base.
With the appearance of the EU’s MiCA regulation (set to be the most comprehensive crypto market regulation globally), banks now have the option to treat cryptocurrencies as a traditional investment product, easing previous barriers to the introduction of the service. However, compliance will impose additional burdens on stakeholders and require significant resources, possibly including external expertise. Therefore, we recommend gaining a comprehensive understanding of the regulation from the outset.
What skills does a bank need to successfully offer cryptocurrencies?
It is essential for banks to have a dedicated person to oversee the project, ensuring proactive management and progress. Without a resolute crypto champion, similar projects often drift aimlessly, even if the organisation has an interest in leveraging the potential of cryptocurrencies. The ideal crypto champion will have the following competencies:
- Hands-on experience: Direct experience in using cryptocurrencies and investing in the asset class.
- Custodial skills: Basic knowledge on the custody of traditional market instruments as well as cryptocurrencies.
- Strategic insight: Ability to represent strategic initiatives to senior management.
- Regulatory Liaison: Experience in collaborating with regulatory authorities.
- Market analysis: Ability to conduct market research and analysis to identify key trends and opportunities.
- Partnership development: as implementation often involves external partners, it is key for the crypto champion to collaborate effectively with them.
How do we align our entry into the field with our existing strategy?
Although cryptocurrency trading has significant business potential, the service may not initially fit into the bank’s existing product strategy. Consider the following steps to address this:
- Identify the key brand values: First, identify the values that currently define the brand and those that the bank intends to maintain in the future.
- Identify compatible crypto services: Assess which crypto services fit with the identified values and which ones may cause conflict.
- Provide educational content: The bank should support employees involved in the preparation of the roll-out by providing them with a basic understanding of the technology and cryptocurrencies. This will ensure that, after implementation, employees are able to support customers seeking assistance and credibly represent the bank’s values.
The banking sector is experiencing a strong market momentum towards the introduction of cryptocurrency trading. Currently, all players in the field are starting on equal footing, but realizing the business benefits requires mapping out the business, technological, and legal conditions for implementation beforehand.
However, launching into the unknown can lead to significant resource demands and delays. If your organization is also interested in exploring the potential of cryptocurrencies and harnessing their benefits, feel free to reach out to us.
Authors: Péter Kanti, Barnabás Horváth
