Banks are essentially institutions established by government bodies for regulating financial activities and securing the funds of the people in that country.
Investing is a concept that has been around for quite some time. However, the term investing in its current form can be traced back to its origins in the 17th and 18th centuries, when developments in public markets connected investors with investment opportunities.
For clarity, I’ll explain some of the terms in this article.
What are banks?
A bank is a financial institution licensed by a government body to manage the receipt of deposits and manage transactions to make loans. Banks may also provide financial services such as financial advice, wealth management, currency exchange, and safe deposit boxes.
This organization is responsible for the management of the totality of customer funds and transactions in a lawful manner. This is done through the process of taking deposits, making loans, and responding to interest rate signals. The banking system helps channel funds from savers to borrowers in an efficient manner.
What does investing mean?
Investments are simply the act of allocating resources, usually in the form of money, with the expectation of generating income or profit in return.
It is a common fact in investing, that risk and return (rewards) are two sides of the same coin. However, low risk generally means low expected returns, while higher returns are usually accompanied by higher risk.
As an investor, you can invest in businesses, such as using money to start a business, or you can invest in assets, such as real estate, with the hope of reselling it later at a higher price, or you can invest in commodities, stocks, and bonds. In recent years, digital assets have become a more popular form of investment with a more global appeal.
What are cryptocurrencies?
A cryptocurrency is a digital or virtual currency that is secured by the use of cryptography, which grants it a tamperproof quality to avoid counterfeit or double-spend.
Almost all cryptocurrencies are decentralized networks based on blockchain technology, which is a distributed ledger controlled by a worldwide network of computers.
A distinguishing feature of cryptocurrencies is the fact that they are not issued by any central authority, thereby rendering them theoretically immune to government interference or manipulation and control as compared to the fiat system of money.
Are banks investing in cryptocurrency?
In the rapid shift towards the use of cryptocurrencies and blockchain technology that we live in now, it is a no-brainer that the entire world’s attention is quickly shifting to them.
According to reports, large tech companies and investment firms have begun setting up crypto trading platforms to stay on top of the new wave of technology affecting the financial industry.
A few years ago, some of these major companies and their CEOs publicly condemned cryptocurrencies, calling them tulip bubbles which would eventually vanish. Regardless, the technology behind cryptocurrency (Blockchain) has proven beyond doubt that its time has come and it cannot be ignored. As a result, whoever ignores it would be at risk of being left behind.
Therefore, large financial institutions like JP Morgan have setup a cryptocurrency trading desk so that they can compete with other financial institutions in the area of managing customer funds in relation to investing.
The same can be said for Setander bank in Europe, which is actively encouraging their customers to talk to them about their investment concerns in cryptocurrencies and blockchain projects.
In addition, major banking institutions are also increasingly aware of the potential benefits that blockchain technology and cryptocurrencies will have in the future in terms of financial management and investment.
The financial models around decentralized financing (DeFi) are indeed an eye-opener for most of these financial institutions as they now see a dynamic opportunity for customers in a digitized economy.
Furthermore, it is to be expected that most banks that are still not digitally compliant will probably be excluded from the train as the world metamorphoses from a fiat system to a digital system in a few years.