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Should Financial Services Organizations ‘Bank’ on Cryptocurrencies?

Jul 2021

In simple terms, a cryptocurrency is a digital or virtual form of payment that can be exchanged online for goods and services. Bitcoin and Dogecoin are two of the most widely known cryptocurrencies in existence today, and both have seen their share of news coverage and fluctuations in value in the first half of 2021. Other players in the space include Ethereum, Ripple, Cardano and Litecoin.

Blockchain: How Cryptocurrencies Work

Developed in 1991, blockchain is a type of database that makes cryptocurrencies possible. Think of it like a shared, immutable ledger that facilitates the process of recording transactions and tracking assets. Information is stored in ‘blocks’ that are then ‘chained’ together, and just about anything of value can be tracked and traded on a blockchain network. The ledger itself can also be programmed to trigger transactions automatically. It’s ideal in that it provides immediate, shared and completely transparent information that can be accessed only by permissioned network members.

Cryptocurrency Exchange Platforms

Unlike traditional currencies issued by a monetary authority, cryptocurrencies are not controlled or regulated (at least not yet), and their price is determined by the supply and demand of their market. Today, they are bought and sold through cryptocurrency exchange platforms such as Baanx, Contis, and Synapse for B2B space, and Coinbase for B2C.

How Banks Can Benefit From Cryptocurrencies

A recent research report from Bank of America found that roughly 20% of banks studies have incorporated blockchain technology into their businesses in some form. Well-known names include JPMorgan, Citi, Wells Fargo, US Bancorp, PNC, Fifth Third Bank, and Signature Bank.

There are many cryptocurrency use cases that make sense for traditional financial services institutions, from holding currency in bank accounts to providing investment advice to wealth management clients, to facilitating commercial crypto-enabled digital payments.  

JPMorgan has a Blockchain Center of Excellence, as well as its own cryptocurrency called JPM Coin, which it uses primarily for funds transfers and faster transaction settlements among clients. Wells Fargo has WFC Digital Cash platform, which allows investors to transfer accounts between Well Fargo subsidiaries. 

Cryptocurrency custodians are third party providers of storage and security services for cryptocurrencies. NYDIG is one custodian that recently announced its intent to now enable any U.S. bank to buy, hold and sell bitcoin through their existing accounts, rather than relying on exchange platforms, fintech trading brokerages such as Robinhood for investments, or PayPal and Square for payments.

Looking into the Future

The cryptocurrency market continues to attract interest from retail investors, large corporations and traditional financial institutions. Regulators in the US are beginning to set policy that could shape the future of an industry that is rapidly moving into the mainstream. Financial services institutions, which have a track record of protecting their customers’ assets combined with best-in-class regulation-oriented skills and relationships are in a prime position to help turn potential into reality.

An Infrastructure for Innovation

Banks and other modern financial services organizations require agility, flexibility and security from their IT Infrastructure in order to embrace industry innovations such as blockchain and cryptocurrencies while meeting regulatory mandates. Panduit hybrid IT infrastructure solutions help build physical infrastructures to enable customer-centric and information-rich operations.

Download our e-book to find out the three key trends driving FS IT transformation.


Jennifer Vallarautto