It’s times like these, bear markets, when industries transform themselves around new realities.
This is as top payment industry leaders surveyed by PYMNTS say that they see the cryptocurrency industry enjoying a much better outlook in 2023 compared to 2022.
At least as it relates to payments, speculative investments in alternative assets across centralized exchanges remain another matter.
Regulated but supportive financial infrastructure is necessary for the success of crypto as the sector as a whole moves beyond just entering the mainstream and begins to seek value-realizing integrations with more traditional financial and institutional players.
“The ultimate success of this industry shall come from the seamless integration of regulated FinTech infrastructure with decentralized systems … It is critical to develop a decentralized payment protocol and integrate it with regulated payment service providers and money service operators,” Dr. Yan Zhang, CEO of Airswift tells PYMNTS. He added that, ultimately, actors need to provide a crypto service that people can use easily.
Given current adoption levels, many banks have growing — but still-nascent — financial ties with the cryptocurrency industry, be it through a retail banking program, merchant solutions, multinational treasury services or corporate lending programs.
As more mainstream financial institutions look to incorporate cryptocurrency into their service offerings for both retail and institutional clients, observers harbor growing hopes that the promise of crypto and blockchain to provide cheaper, faster and safer domestic and cross-border payment solutions may begin, a decade later, to be more fully realized across the marketplace.
A year of self-healing
The crypto industry found its villain in Sam Bankman-Fried near the end of 2022, as the 48-hour implosion of his FTX sent shockwaves throughout the industry and severely rattled investor confidence.
What it needs for 2023 is a hero — or perhaps, a hero use case.
The rapid growth of eCommerce has transformed the digital payments ecosystem alongside its meteoric rise.
Crypto offers many exciting benefits as a payment rail. However, adoption by governments and leading traditional finance organizations is limited, as is regulatory oversight.
Regulation will need to play an increasingly significant role in fostering trust in the crypto space and markets across the world. With enough top-down pressure, even a lump of coal can become a diamond.
As PYMNTs reported Thursday (Jan. 26), the U.S. has created a new crypto-focused subcommittee called the Subcommittee on Digital Assets, Financial Technology and Inclusion.
It will be interesting to see what role the committee takes. As Airswift’s Zhang said: “2023 will be the year of rebuilding. Specifically, crypto’s integration with real lives will drive growth.”
TradFi integration
Putting digital assets on the balance sheet represents one of the biggest hurdles for financial institutions considering integrating crypto into their services, despite a 2020 Office of the Comptroller of the Currency (OCC) announcement giving businesses the green light to do so.
“I think with recent events, there might be a bit more of a ‘monkey-see, monkey-do’ situation surrounding [the adoption of crypto payments],” as Gary A. Vecchiarelli, CPA, CFO at CleanSpark told PYMNTS in an earlier conversation. “People are going to wait for someone else to do it first.”
Some of finance’s biggest players, including JP Morgan, BNY Mellon and BlackRock, are helping part the waters.
BNY Mellon now offers a digital assets custody solution, safeguarding digital assets alongside traditional investments on the same platform.
The bank partnered with industry players to build its digital asset infrastructure rather than going alone. BNY Mellon tapped Chainalysis as a key partner, integrating the blockchain company’s Know Your Transaction (KYT), Kryptos and Reactor tools to get real-time transaction monitoring and live risk information.
JP Morgan is also exploring decentralized finance (DeFi). In Q4 of last year, the bank completed its first DeFi transaction, conducting a swap of tokenized Singaporean dollars and Japanese yen as part of a pilot organized and authorized by the Monetary Authority of Singapore.
BlackRock’s bitcoin private trust similarly provides an instructional example of how asset managers can give their institutional clients access to cryptocurrency markets via synthetic products. While BlackRock owns the bitcoin, the investment firm’s clients can purchase shares in the trust to gain exposure without having to own the digital asset themselves.
Though not a traditional financial player, Apple has partnered with Circle to allow Apple Pay users to purchase items using Circle’s USDC stablecoin.
“Crypto will reinvent the exchange of value in the same way the internet reinvented the exchange of information … it represents what I believe is the future of payments,” Pratima Arora, chief product officer at Chainalysis, told PYMNTS.
With the right data, tools, guidance and partnerships, the cryptocurrency industry can bring its moonshot promise down to earth in the months and years ahead.
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