Traditional banking and finance in the Nordic region is facing a new wave of digital disruption, driven and challenged by crypto and blockchain players, Fintech companies and banks redefining themselves. The huge interest in Bitcoin ETFs is just a foretaste of what may come.
Morten is CEO and founder of the Media startup Kaupr. Background as a journalist (Dagens Næringsliv), communication advisor (Cox Kommunikasjon & Dinamo), and digital business consultant (The New Company). Today exploring Web3, the Metaverse, and the Next Generation Internet as a founder and editor of Kaupr.io.
This is what Kaupr's editor Morten Myrstad writes in a comment. Myrstad is based on the fact that the world's largest asset management company, Blackrock, and eight other providers, received approval from the US Financial Supervisory Authority in January. But from there, Myrstad moves on to also look at other areas where crypto and the blockchain meet traditional banking and finance.
“Bitcoin is digital gold” and a “flight to quality” are some of the statements of Larry Flink, the top boss of the world's largest asset management company, Blackrock, when the company in January this year received approval from the US Treasury to launch Bitcoin spot-based ETFs, along with eight other providers. In mid-February, net capital inflows to the US Bitcoin ETFs amounted to a gross $12 billion. USD and net 5.1 billion USD, as many Grayscale investors have wanted to sell out after being locked up for a long time. No matter how you turn the numbers around, the ETF launches are a huge success and that is simply due to the fact that US fund savers, often from the “baby boomers” generation, have now gained access to Bitcoin in a safe and regulated wrapper and as a small spice in their portfolio.
However, the ETFs are only a first step in making digital asset classes more accessible. Banks, brokerage companies and trustees around the world are now considering the potential that may lie in the concept of 'Tokenization of Real World Assets' Here, tokenization means offering investments via digital tokens, which are a much more liquid, efficient and easy-to-use wrapper than traditional securities and asset classes. Real World Assets refers to the fact that the underlying asset class, to which a token is attached, can be stocks, bonds, metals, real estate, art, or whatever it may be. Here it is predicted that in a few years, all investment objects will be offered in the form of a token.
The European Union even has a project that they have called “Tokenise Europe 2025,” a project that should help speed up tokenization. A short time ago, Citibank also went out and shared details from their test of private equity tokenization, where they adopted the public blockchain Avalanche.
“Blockchain is much more than crypto,” Goldman Sachs boss David Salomon said back in 2022. And he's absolutely right. What Salomon draws attention to is that the blockchain as a technology platform, as a decentralized, common and global database, can be adopted both with and without the use of financial incentives such as crypto. Distributed Ledger Technology (DLT) is often referred to as. It is also this technology that forms the core of many of the tokenization platforms that we are now seeing being rolled out, both in Switzerland, Germany, France, the United Kingdom and the Baltics. Some of these are included in open marketplaces, while others are embedded with a bank or financial institution via a so-called white label solution. Since the core systems of most Nordic and European banks may initially be both 40 and 50 years old, both DLT technology and tokenization tempt traditional finance to be able to digitize its processes much faster.
In some areas of finance, such as payments, fluctuating cryptocurrencies are not particularly suitable. Thus, a separate cryptocurrency has emerged, stablecoins, which you can also use to carry out transactions and exchanges between cryptocurrencies. The leading stablecoins, from Circle and Tether, are both pegged to the US dollar. Here Tether has already reached $100 billion USD. US policymakers are thus beginning to wonder about whether stablecoins are not a threat to the dollar, but can actually strengthen the US dollar. PayPal has already launched its own stablecoin. In Europe, it is also rumored that a number of banking consortia are considering joining forces on a stablecoin based on the euro. In addition, investigations or testing of so-called Digital Central Bank Money (CBDCs) are currently underway in over 130 countries, including our own Norges Bank.
In 2020, the crypto markets experienced a so-called DeFi summer, with a surge in what is known as Decentralized Finance (=DeFi). Through blockchain-based DeFi solutions, it is possible to both borrow, lend and earn interest on crypto holdings, but unlike a traditional bank - completely without intermediaries. This market, too, has experienced its lows, but is again on the rise, both due to increased interest in crypto, but also due to technological innovations. For now, DeFi does not threaten traditional banking and finance, but it could very well come.
For many, crypto is often associated with trading on pure crypto exchanges, and in 2022 many Norwegians also experienced heavy losses and were frightened away. Naturally, this has also hit the Norwegian crypto exchanges Firi, K33 and NBX, all of which have had to go through major layoffs and refinancings in recent years. But right now, probably these companies are pretty well trimmed, and are also aiming to grow. Firi, which has invested heavily in user-friendly onboarding in the form of Vipps and Bank ID, is the largest crypto exchange in the Nordic region with over 200,000 customers in Norway and Denmark, and plans to launch in Sweden. K33, which has defined larger and institutional investors as its primary target groups, is in talks to offer its brokerage services to other financial players in the Nordic region. While the third largest Norwegian crypto exchange, NBX, aims to be a service provider to traditional banking and finance, when they need crypto-related services. NBX has even been a technology provider to Norges Bank. We are seeing the beginning of digital finance and classical finance meeting each other.
This convergence is also happening at an even higher speed internationally and also includes Fintech companies, mobile banks and neobanks. Deutsche Bank, for example, has signed a cooperation agreement with the DLT operator Taurus. The Swiss postal bank Postfinance now offers crypto trading in its apps, in partnership with a Fintech company. Mobile banking apps offer both so-called onramp and offramp between regular currencies and cryptocurrencies. Also in mid-year, the neo-bank Revolut announced that it will launch its own crypto exchange, in competition with Coinbase and Binance, among others. And this week it became known that Revolut will integrate directly with the crypto wallet MetaMask.
So what are we left with impressions at the start of 2024? Sure, there are more and more encounters between classical finance, fintech and crypto. These meetings, for many within traditional finance, will be seen as challenges, not to say threats. But perhaps it might be smart to raise our eyes a little, and also see the opportunities that this can provide, for change-minded Nordic financial players?
Morten Myrstad is the editor of the online newspaper Kaupr, which is run by the editor poster. This time Myrstad has written a blog comment that stands at his own expense.
Kaupr's blog post is open for posts, analyses and debate in Norwegian, Danish, Swedish or English. Send your article or idea to morten@kaupr.io.