Bitcoin breaks into Traditional Finance: Commoditizing crypto currency offerings

In this article, we provide an overview of crypto currency offerings by banks in our focus markets —Switzerland/Liechtenstein and Singapore. We argue that crypto currency offerings by banks are becoming mainstream in the former two countries, list the partners traditional banks have engaged to build their digital asset capabilities, and discuss considerations for launching a crypto currency offering in a maturing market.

Key Takeaways

The approval of Bitcoin ETFs by the U.S. SEC marked a significant integration of crypto currencies into traditional finance, driving Bitcoin to new highs and spurring institutional demand

Switzerland and Liechtenstein have led the way in making crypto currency services widely accessible through traditional banks, empowered by proactive regulatory environments and world leading digital asset banks

Banks must strategically evaluate their approach to providing digital asset services, balancing outsourcing with proprietary development to meet client needs and align with their broader goals and ambition in blockchain technology

Bitcoin enters traditional finance

The year 2024 started with remarkable momentum for crypto currencies. On January 10th, the U.S. Securities and Exchange Commission (SEC) greenlit applications for spot-traded Bitcoin ETFs by Blackrock, Fidelity, Grayscale and several others. While the US are not the first country to allow Bitcoin ETFs, the move was widely interpreted as the adoption of crypto currencies into mainstream traditional finance. Powered by market anticipation and finally the flood of institutional demand for the ten new Bitcoin ETFs, the Bitcoin price reached a new all-time high in March at above USD 73,000. Somewhat unexpected, the SEC doubled down on May 23 by approving Ether ETFs, too.

Postfinance’s timing could thus not have been much better. In February, the Swiss retail bank launched its digital asset offering allowing its over 2.5 million clients to trade Bitcoin and ten additional crypto currencies such as Ether and Uniswap via its eBanking.

Switzerland and Liechtenstein: Commoditizing crypto currency offerings

Postfinance’s initiative is another step towards broad accessibility to crypto currencies for retail investors, but Postfinance is not the first traditional bank offering crypto currency trading and custody to its clients. In Switzerland, several cantonal banks added crypto currencies to their product offering in the last months. Zuger Kantonalbank was the first to offer Bitcoin and other crypto currencies trading to their clients as of October 2023. Luzerner Kantonalbank and St. Galler Kantonalbank followed suit, complementing the retail offering by early-mover Swissquote.

Among private banks, many already had introduced a limited digital asset trading and custody offering focusing on Bitcoin to their wealthy clients prior to the recent push in the retail market, although not all of those offerings were made public. In some cases, the earlier adoption was punished by coinciding with the collapse of the world’s then second-biggest digital asset exchange FTX and the following crypto winter in 2022. It remains to be seen whether a broader adoption by retail clients also motivates private banks to expand their offering, potentially driven by a revived appetite of their private clients.

Below is a table enumerating banks in Switzerland and Liechtenstein that are publicly recognized for offering Bitcoin and other crypto currency trading and custody services to their clients, excluding B2B offerings. Additionally, for traditional banks, we provide insights into selected partners they have collaborated with to establish their offerings, sourced from publicly available information.

Additionally, retail banks like Thurgauer Kantonalbank have stated they were considering an own offering, while others may already be in the process without public disclosure. Moreover, retail investors can access Bitcoin through financial apps like Yuh (a collaboration between Swissquote and Postfinance) as well as through various crypto exchanges.

The adoption of crypto currencies is far advanced in Switzerland and Liechtenstein, reflecting the proactive approach of regulators and building on the pioneer work of world leading digital asset banks AMINA (formerly SEBA) and Sygnum as well as crypto-friendly Bank Frick and crypto-broker Bitcoin Suisse.

Singapore: Regulatory hurdles for banks

Banks in Singapore have generally chosen a more cautious approach when it comes to the adoption of crypto currencies. This is partly due to higher regulatory hurdles. In Singapore, licensed banks need to acquire an additional Digital Payment Token License from the Monetary Authority of Singapore (MAS) to offer crypto currency custody and trading to their clients. So far, only DBS Bank has obtained the respective license and developed an own offering: since 2022 DBS offers trading and custody for Bitcoin, Ether and a few other crypto currencies for a minimum investment of SGD 500 via its Digital Exchange (DDEx). In addition, there are several MAS approved and regulated exchanges such as Coinhako that provide access to crypto currencies and currently play the main role when it comes to providing access to crypto currencies to retail investors.

Considerations before market entry

Launching a crypto currency offering will not be a novelty anymore going forward. Clients no longer have to choose between self-custody of assets and entrusting their assets with weakly regulated institutions. Utilizing banks for crypto currency trading and custody offers numerous benefits, including convenient access, avoidance of fiat on-ramp costs associated with exchanges, consolidation of financial assets, access to tax information, and enhanced security in the event of insolvency as banks usually hold their client’s crypto currencies off-balance sheet. I.e., unlike in the case of most crypto exchanges, the client’s assets will not become part of the bankruptcy estate in case of bank insolvency.

Banks eager to enter an increasingly competitive market must assess whether their offerings address critical client needs that cannot be fulfilled through alternative means, such as access to Bitcoin and Ether ETFs, the most sought after crypto currencies. Additionally, the extent of outsourcing in the development process is crucial. While platforms like those offered by crypto banks Sygnum and AMINA provide rapid entry to market, a blend of proprietary development and strategic outsourcing, particularly for critical functions like private key custody through providers like Fireblocks, offers flexibility and customization. The decision on investment in proprietary development should be guided by strategic objectives and aspirations in both the digital asset market and blockchain technology. Many global banks have teams looking into the opportunities beyond crypto currencies, such as more efficient settlement and payment transactions.

Finalix has extensive experience in vendor evaluation and has assisted traditional banks in the implementation of their digital asset offerings. We have also collaborated with native digital asset companies in establishing both business-to-business (B2B) and business-to-consumer (B2C) offerings. Finalix has accompanied some of these companies pursuing licensing requirements for digital asset offerings. Furthermore, our insights into the potential of digital assets and the avenues for entry for traditional banks were detailed in an article published last year titled How Digital Assets will Shape the Financial Market