Frank Leonette of AfriDAX delves into the imminent arrival of banks into the crypto space in SA, a surprising and ironic turnaround given their prior hostility to this new asset class. There are risks aplenty for customers, and not everyone will welcome the banks. From Moneyweb.
You can also listen to this podcast on iono.fm here.
What happens when banks embrace crypto, as they are about to do?
Given their huge share of the transactional banking and investment markets, they will be able to use this footprint to gatecrash the crypto market and potentially disrupt the crypto exchanges.
After years of cutting off crypto service providers from banking facilities, banks are now preparing to launch their own cryptocurrency offerings.
Soon, account holders will be able to purchase bitcoin and other digital assets directly through their banking apps.
This will mark a major turning point in how traditional banking institutions view and engage with cryptocurrencies, says Frank Leonette, founder and CEO of crypto exchange AfriDAX.
It is ironic that banks are now falling in love with crypto. They spent the last decade or more ignoring it, then de-banking crypto providers, and then quietly investigating how they could participate in what was clearly a phenomenon that could not be wished away. Expect to see a bunch of new offerings from the banks in the coming months.
This raises some important questions. Banks operate on a fractional reserve system, which means they lend out money deposited by customers. Not only that, they lend it out multiples of times. Will they do the same with your crypto?
That’s a clear risk, says Leonette, and customers will want to ask some pointed questions of their banks once they start offering the ability to purchase and custody bitcoin.
Then there’s the potential risk of de-banking. Banks around the world – including in SA – have de-banked customers citing reputational risks.
Everyone cheered when local players de-banked the Gupta companies, but what if this happens to you?
Banks have a solid track record in custodying your cash, and they will no doubt highlight this as a reason to trust them with your crypto. But what newer entrants to the market will have to understand is that crypto sent to a wrong address is gone forever – there will be no come-back against the bank. Crypto operates in a permissionless environment.
Leonette says many of the early crypto adopters will likely resent the entry of banks into their space, given that the development of bitcoin was an act of rebellion against the mass impoverishment of billions of people following the 2008 financial crisis – from which the banks emerged in fine fettle thanks to taxpayer-funded bailouts.
In this fascinating podcast, Leonette delves into the likely future of banks in the crypto space, and what this means for crypto exchanges: more competition, possible consolidation and, no doubt, more choice for customers. But with some major potential risks.
