Warren Deats, CIO at Geddes Capital, explains that banks are likely far closer to entering the crypto space than many realise. The former banker and crypto sceptic says he understands the banks’ hesitancy when it comes to crypto, but argues they cannot delay their entry much longer. From Moneyweb.
You can also listen to this podcast on iono.fm here.
Word on the street is that the banks are about to enter the crypto market, a sharp turnaround from their previous hostility towards crypto as a supposed gateway to fraud and illicit activities.
What this likely means is that you’ll soon be able to buy bitcoin (BTC) and a few other cryptocurrencies on your banking app. For established crypto exchanges like Luno and VALR, this means more competition. Banks have a huge advantage – more than 50 million customers between the five major banks and a well-deserved reputation for safe custody of cash and equities.
In this podcast, Warren Deats, chief investment officer at Geddes Capital, explains that banks are likely far closer to entering the crypto space than many realise. Deats, himself a former banker and a crypto sceptic, says he understands the banks hesitancy when it comes to crypto, but argues that the banks cannot delay their entry to the crypto space much longer.
Read: Are SA banks about to enter the crypto market?
“The [banks’] attitude towards crypto has fundamentally changed in the past couple of years. And I think a big part of that is regulators starting to step up to the plate, and then banks realising that there’s no opportunity anymore to keep this away. They can’t keep crypto out of the market – it’s here to stay. So they have to get involved.
“I think the banks are still struggling with an unclear regulatory environment. They know they need to be in the space. I think they’re slowly dipping their toes in, building departments around it so that they can at least understand and have some knowledge and DNA [in-house]. And over time, when they’re ready to fully dive in, they will at least have the experience or some semblance of experience in the space.”
All the major banks have teams working on crypto projects; several have developed digital wallet capabilities. It’s a small step from there to offering BTC on banking apps. The question many want answered is: will they charge a fee for using their crypto wallets, something that crypto exchanges provide for free?
“I’ve had a lot of discussions about where and what they’re looking at. For now, I think they’re just trying to learn the space and make sure that they have educated people in their teams. Where they’re going to next, I think, will be driven by where regulation goes and, quite frankly, where scandal goes in the market as well. Banks are very focused on their reputations. They should be. They’re very focused on their banking licences… on not having one small department take down the entire mothership. So I think there has to be an element of conservatism from the traditional banks,” says Deats.
Listen: Masie’s message to Discovery and Naspers: Get with the bitcoin programme
What about crypto-backed lending?
You can borrow using free equity in your home, why not bitcoin? The banks are not there yet, but say they’re watching events. International banks such as JP Morgan Chase and Xapo Bank allow for this already, as do some crypto providers in South Africa, notably VALR and Geddes Capital.
Geddes is a pioneer in the crypto-backed lending space, which Deats expects to start slowly, gradually building momentum within the next nine to 12 months. One of the big weaknesses of the crypto market is insurance for crypto endeavours. It’s starting to appear in other parts of the world, but not yet in SA.
The main challenge with crypto-backed lending is convincing crypto owners to hand over custody for safe keeping.
Says Deats: “Fundamentally, we are taking charge of their crypto and then storing it safely for them. That has two elements.
“First and foremost, our clients need to be comfortable with us. I think if someone new, without a reputation, steps into the market, it’s very difficult to pass your crypto to them. We’ve been around for 10 years [and] I’m sure people still… question passing their crypto to us for safe storage.
Listen: How bitcoin went from cool to necessary
“Secondly, it’s [about] where we keep it safe. I’m not going to keep it in my exchange account and definitely not…in a cold storage stick that I’m walking around with. That just opens you up to a whole world of risk.”
It’s not dissimilar to taking out a loan with a bank. “You prove the value of your assets; you prove your ownership of the assets on your wallet passing to us. We can see the wallet code and identify what is in that wallet. We do our own due diligence in the background to ensure those coins are not the product of illicit transactions.”
The beauty of crypto-backed lending is it’s available within days and at competitive interest rates.
Banks are no doubt watching this with fascination, given their huge reach into the SA retail market and the potential to unlock an entirely new credit market among the 7% to 10% of adult South Africans who own crypto of some sort.
In this fascinating podcast, Deats lays bare the kind of crypto market we’re likely to see in the coming months and years.
It’s about to get a lot more interesting and competitive.
