Top 5 Reasons Why Banks don’t cooperate with Crypto Companies

There are many reasons why banks do not cooperate with crypto projects. Regulation, its volatility and the uselessness of many ICOs have given crypto a bad name in the banking industry. Still, the access to financial services is crucial for any company even if it relies on something that tries to replace these services. While some of those reasons are overestimated right now, others could become more important in the future.

Crypto is seen as a competitor

This is probably the reason that many crypto enthusiasts think is the most important reason. Bitcoin tries to replace banks and their fiat money. Therefore, many people conclude that banks try to impede the adoption of Bitcoin. However, most banks do not represent the fiat money system but only themselves. It is unsure when Bitcoin or any other cryptocurrency will be ready to replace the fiat money system. Until then, many banks would love to cooperate with crypto projects if it flushes capital into their accounts. However, it is difficult to estimate which crypto companies might be profitable.

Clueless on how to assess this new market

There are many well-established approaches on how to calculate the profitability of new projects. Banks can calculate with many factors such as demand, possible clients, competitors, marketing costs etc. But all this is very difficult to apply on an entirely new market with a still fast-developing technology. Therefore, you can observe in the market that many ICOs have switched their strategy. While, the first generation of ICOs often wanted to ‘disrupt’ their sector, newer ICOs want to cooperate with existing enterprises. Another approach that many banks and people from the finance sector have adopted is to found and fund their own crypto projects.

“Bitcoin & Co. are overestimated”

Many people in the finance sector hold the view that Bitcoin is just a hype that will be over sooner or later. The volatility, the user-unfriendliness, and the sheer unnecessariness of Bitcoin are the main arguments against Bitcoin. Another popular argument against Bitcoin  Co. is that it is allegedly wasteful. Some of these allegations are true as of now. However, developers, technicians and designers etc. are working to improve cryptocurrencies in many ways. Still, to many people it does not make a difference if a Paypal transaction or a card transaction takes 10 seconds e.g. even if a Bitcoin transaction would only take 5 seconds.

They think crypto is malicious

Basel – Bank für Internationalen Zahlungsausgleich-Tower Building, copyright Fred Romero via Flickr.

Various institutions have tried to give Bitcoin & Co. a bad name. Terrorists use Bitcoin to finance themselves, the mafia uses Bitcoin to launder money and even North Korea uses Bitcoin allegedly to finance itself. However, most of these allegations are mere suspicions and not based on reality. Studies have shown that the use of cryptocurrencies is overestimated in financing terrorist and criminal activities. Europol’s recent report on internet crimes underlines this view. In fact, fiat is much more used to finance illegal and even terrorist activities as Europol has shown. Still, the bad name of cryptocurrencies in addition to before mentioned arguments is a good reason for banks to not cooperate with cryptocurrencies. However, the possibility of using Bitcoin this way has led to according regulation as well.

Regulation doesn’t allow them to

We can describe this as the Indian model. The Reserve Bank of India (RBI) has tried everything to outlaw the trade of cryptocurrencies. The Indian central bank has even pressured private banks in India to stop cooperating with crypto projects. China and some other states have taken the same approach (with exceptions). However, this last reason is probably the worst reason for a bank to not cooperate with a crypto project. As it does not leave the choice to the bank management itself but to the authorities. This last reason could possibly become more important in the future when Bitcoin or any other cryptocurrency starts to fulfill its promises. Bitcoin already has strong opponents within the finance sector. Such as the representatives of the Bank of international settlements. It is well possible that their influence seeps into regulations in the very near future.