Bank of America Research Teams Updates on Crypto
Bank of America has launched a dedicated research team to investigate cryptocurrency and its value proposition. Its decentralized finance model and plans to offer cryptocurrency to high-net-worth individuals are exciting developments.
But how will the Company use cryptocurrency to meet its financial goals? Below we explore some of the potential value propositions for cryptocurrencies. This article focuses on 3 aspects of this venture. Its research team is a great place to start.
Bank of America launches a dedicated team to research cryptocurrencies
According to Bloomberg, Bank of America has launched a dedicated team to research cryptocurrencies. The team will be led by Alkesh Shah, who has worked in technology for several years and previously led global teams.
Shah will focus on both financial and technology research related to digital assets. His background includes work at Morgan Stanley and Lehman Brothers. Additionally, he is an expert in network effects. He will report to Bank of America’s global fixed income chief, Michael Maras.
Though some financial industry leaders are sceptical of the value of cryptocurrencies, others believe that they could outperform conventional banking products in the long term. The most prominent cryptocurrency, Bitcoin, was also associated with a Twitter hack in July 2020.
However, some believe that cryptocurrencies could outperform conventional banking products because they offer greater efficiency and transparency. So, the question is: how can a mainstream financial institution like Bank of America use this technology?
While no single bank has a monopoly on the market, large banks are increasingly looking at these digital assets as potential investment opportunities. With this new team, banks can get an in-depth understanding of how these assets will impact global markets.
And because this field is evolving, Bank of America is recognizing this. The bank has already launched a newsletter service, Cointribune.com, which features a variety of opinions on the topic. However, it should be noted that this service does not provide investment advice.
As the industry continues to evolve, Wall Street has been ramping up its hiring of crypto experts. According to LinkedIn, financial services firms added more than three times as many jobs related to cryptocurrency in 2017.
And this trend is continuing. In the first half of 2021, financial institutions will hire 40 per cent more crypto experts. It isn’t clear whether this is an accurate prediction or an overestimation. For now, the biggest impediment to the continued growth of cryptocurrencies is regulatory inconsistency.
Banks and businesses alike are aware that changes in regulations could cause their investments to decline in value. Another unresolved question is what the legal definition is for crypto assets. Are they securities? Or are they commodities? Until that debate is resolved, banks and investors will continue to wait and see what happens next.
The company has a decentralized finance business model
Bank of America has launched its cryptocurrency research division and released a 140-page report on the topic. This report explores the potential uses of Bitcoin, ICOs, NFTs, DeFi, and central bank digital currencies.
According to Alkesh Shah, head of global cryptocurrency strategy at Bank of America, as of June 2021, there were 221 million people who purchased and sold cryptocurrencies. The growth of the crypto industry has slowed somewhat since the summer of 2020 when the number of assets in the space reached $93 billion.
However, its growth has slowed since then, as Congressional scrutiny on crypto has increased. The technology behind decentralized finance is becoming increasingly mature, with many companies focusing on it. This means that many of the same issues that concerned early adopters are facing with ICOs are now being addressed in decentralized products.
In the past summer, the cryptocurrency had a resurgence in popularity. While it is still early, USD Coin has made significant progress toward preserving asset value, as well as establishing itself as an accepted means of payment.
The blockchain technology behind both cryptocurrency and its supporting financial infrastructure is on the verge of offering a parallel system of financial rails to traditional financial institutions. These are just some of the advantages of this emerging financial technology.
Another major advantage of crypto is its potential to eliminate the middleman. By removing the middleman, banks can streamline the financial process and make it more transparent for everyone. It also helps protect consumers by eliminating intermediaries.
This technology has the potential to transform banking. The concept of decentralized finance has been adopted by small businesses, especially in developing countries.
Some businesses are using payment companies such as BitPesa in Africa and Tranglo in the ASEAN region. The technology has allowed these companies to create a new business model where individuals are essentially the banks and no one is a third party.
Plans to offer cryptocurrency to high-net-worth individuals
As cryptocurrencies continue to grow in popularity, Wall Street back-office banks are starting to enter the crypto space. For several years, BNY Mellon has been developing various services to manage clients’ digital assets, but it has been waiting for regulators to give the green light.
Meanwhile, the Office of Comptroller of the Currency (OCC) has weighed in on the use of blockchain technologies by banks. In an application filed with the New York Stock Exchange (NYSE), Bank of America mentions cryptocurrencies as a risk factor.
It details three possible threats, each of which implicitly denigrates the new assets. While some emerging technologies make it difficult to track funds and comply with regulations, others threaten centralized financial systems and banks’ long-term viability.
However, Bitcoin and other cryptocurrencies pose only a small threat in the immediate term. While it is unclear if any other financial institutions will follow suit, Morgan Stanley recently announced that it would offer access to three bitcoin funds for its clients.
This is the first major bank to offer such access to its customers. However, it will only be available to high-net-worth individuals. The bank has remained tight-lipped about cryptocurrencies in the past and has only opened a branch in the Decentraland Metaverse in April.
Other banks have also begun offering crypto investments to high-net-worth individuals. According to the filings, UBS, the largest private bank in Switzerland, is preparing to offer cryptocurrency investments to wealthy clients.
But this investment will be a small part of clients’ overall portfolio, and it will hedge against the volatility of cryptocurrencies. It may also use third-party investment vehicles to facilitate these investments. The bank plans to introduce professionally managed crypto-currency funds to their wealthy clients.
While the fund will target high-net-worth individuals, the risks associated with digital currencies mean that it will be a better investment for qualified investors. The cryptocurrency fund fell below $34,000, sparking a sell-off in other digital currencies. This move may be an indication that more banks are evaluating the use of cryptocurrency.
Potential value propositions for cryptocurrencies
In March 2021, Bank of America consolidated its views on cryptocurrencies and asserted that Bitcoin is at the cusp of mainstream adoption. The bank highlighted concerns about capital efficiency and insurance, as well as the environmental impact of mining cryptocurrencies.
However, it noted that these concerns are relatively inconsequential in the short term. However, these concerns may prove problematic for the bank in the long run. The Bank of America recently launched a cryptocurrency research division.
The report covers Bitcoin, NFTs, DeFi, and central bank digital currencies. The report also mentions the rising importance of CBDCs and Stablecoins and cites data that estimates the market cap of the top six Stablecoins at $115 billion, with the total market cap expected to reach $2.8 trillion by 2021.
In terms of utility, Bitcoin is a utility cryptocurrency, while Ethereum is a speculative one. But while these two cryptocurrencies are considered mainstream, less popular coins, such as Whoppercoin and PutinCoin, are considered speculative and unpredictable.
In addition to the value of Bitcoin, cryptocurrencies are also classified according to their utility, which can be useful for investors. The value propositions of these digital assets are highly dynamic and can change quickly.
However, investors should consider the risks of speculative investments in cryptocurrencies before making any major decision. While many banks have been vocal about their concerns, their actions speak louder than words.
For example, Citigroup, one of the biggest investment banks in the world, was among the first to wade into the cryptocurrency market and came up with a strategy that would let investors invest in cryptocurrencies without having to own them.
While cryptocurrency enthusiasts are vague about its potential value, there is one criterion that has to be met before it becomes a viable investment: bitcoins are used in commercial transactions.
Today, even Tesla accepts bitcoins as payment. The safe-haven role of cryptocurrencies also provides other value propositions. But despite these flaws, bitcoin remains a highly risky asset that is unlikely to be exchangeable for real goods.
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