The cryptocurrency and digital assets market experienced more than seven-fold growth in the last 12-18 months, making it a key area of focus for global financial systems
Everest Group reports the year 2020 and Q1 2021 produced a seven-fold surge in retail and institutional investments in cryptocurrencies and related crypto assets, driven by increased investor demand, pandemic-fostered digitalization and clarity in regulatory tenets. The cryptocurrency market hovered around US$2 trillion through April 2021 and is projected to reach US$24 trillion by 2027. This growth is forcing traditional banks to realize that digital assets are the future of money. Banks need to invest early to capture high-growth pockets and investor mindshare in this market, according to Everest Group.
Several players within the banking and financial services (BFS) industry are already active in the growing crypto market, which is a thriving ecosystem comprising several digital assets including privacy coins, stablecoins, cryptocurrencies, security tokens, utility tokens and Central Bank Digital Currencies (CBDC). IT service providers are developing in-house solutions to help financial institutions use Blockchain-as-a-Service (BaaS) for their digital asset needs. FinTechs are at the forefront of innovating products and services but operate in an unregulated environment, posing high risks for investors. Larger investments have increased the safety, security, and accountability requirements to invest in these assets. Thus, there is an urgent need for regulatory bodies globally to bring in practical frameworks and regulations for digital asset trade at the earliest.
These findings and more are shared in Everest Group’s recently published “Deconstructing the Digital Assets Revolution – What Financial Institutions Can Learn from the Meteoric Rise of Coinbase.” This State of the Market Report analyzes the rise of retail and institutional investments in digital assets, including cryptocurrencies, other crypto assets and crypto technology. The report examines crypto financial service offerings and their impact on the BFS market. Everest Group also recommends a transformation plan for traditional banking systems through a hybrid model, which seamlessly integrates value-added processes and operational functions for both traditional and digital assets being serviced on a digital-native platform.
Key trends and imperatives in the digital assets revolution:
- Venture funding is at an all-time high for blockchain-based market infrastructure platforms, which indicates a rising threat to existing financial systems.
- Banks must follow a three-pronged strategy to build, partner and acquire digital assets skillsets in the market to stay ahead of the curve.
- Traditional financial institutions will face several issues in developing in-house solutions to adapt new financial technologies, such as updating legacy systems, regularly innovating solutions, and keeping up with regulations globally. These institutions can partner with FinTechs that specialize in developing and servicing such solutions at global scale in a plug-and-play model.
- Large financial services firms are developing capabilities and skillsets to stay ahead of the competition in the crypto asset services market. For example, Wells Fargo has introduced a cryptocurrency fund focused on HNIs; a consortium of 15 major institutions have developed a Utility Settlement Coin (USC) for peer-to-peer digital cash settlement; BNY Mellon built expertise as a crypto ETF service provider; JPMorgan Chase & Co. has invested in building its own cryptocurrency; and Anchorage and Silvergate, new players in the banking sector, cater only to crypto assets.
- Technology vendors (such as AWS, Alibaba Cloud, Oracle and R3) and IT service providers (such as Accenture, Infosys, IBM and Tata Consultancy Services) are developing in-house solutions to help financial institutions use Blockchain-as-a-Service (BaaS) for their digital assets needs.
- Several financial technology platforms and services players have entered the digital assets space in core and value-added services, including cryptocurrency mining pools, custodians and banks, crypto assets development tools, crypto asset and portfolio managers, crypto assets analytics platforms, crypto over-the-counter desks and trading spaces for market whales, and crypto credit providers.
- Banks face numerous challenges as they strive to stay ahead of the curve, including regulations, disaster management, private key recovery, insurance-backed custody, and systems for fraud prevention.
About Everest Group
Everest Group is a research firm focused on strategic IT, business services, engineering services, and sourcing. Our clients include leading global companies, service providers, and investors. Clients use our services to guide their journeys to achieve heightened operational and financial performance, accelerated value delivery, and high-impact business outcomes. Details and in-depth content are available at http://www.everestgrp.com