Recent bank failures and the fear of runs at others, including First Republic Bank, have led some to believe that the US government wants to push crypto out of the country. However, this could actually be the best time for financial professionals to embrace crypto and learn more about its potential solutions. The Bitcoin blockchain was created for situations like the recent fallout in traditional banking, and crypto’s inherent characteristics such as self-custody, transparency, and immediate settlement could bring more adoption.
For decades, financial institutions have been the custodians of most of our financial assets. However, recent events have shown that our money might not be safe at the bank, even with extreme government regulation. Crypto, on the other hand, is built on the idea of self-custody, and more people and businesses may start viewing it as an option for some of their assets. This is not necessarily because they are investors in crypto assets, but because they want to use the crypto rails as a way to circumvent the reliance on custodians regulated by the government.
Transparency is also an issue in traditional banking. One of the purposes of registering with the state, Federal Reserve, and Securities and Exchange Commission is to make the books public and visible to everyone. However, this transparency is usually quarterly, not up to the second. If asset pools were transparent up to the second, as they are in crypto, all depositors would know exactly how much liquidity the pools contained and could determine their relative need to withdraw in an efficient manner, rather than out of fear.
Furthermore, the recent bank runs were due to a worry about liquidity, not solvency. In contrast, the crypto system is always on, and blockchain-based transactions are settled and final. With the rise of crypto assets and increased media coverage, there is a need for one or more of the characteristics inherent to blockchains, crypto, and decentralized finance.
As crypto custody becomes safer, there should be a natural migration towards crypto and blockchain. Financial professionals can view recent events as a sign that the US government is anti-crypto or as a sign that the crypto ecosystem is needed. Learning about crypto and determining how to best incorporate it into a portfolio may be the best move for financial professionals to prepare for increased adoption and use by ordinary individuals and businesses who view crypto as a viable and necessary alternative to the current financial system.
