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Blockdata: State of Crypto Banks in 2022

Blockdata | Aug 28, 2022

crypto bank comparison 2022 - Blockdata:  State of Crypto Banks in 2022

Current market overview

  • The global number of people who own crypto skyrocketed 178% in 2021, from 106M in 2020 to 295M in 2021.
  • Despite the increase in the number of users, cryptocurrencies suffered a steep decline this year after the industry market cap plunged to $1.6T on January 24, 2022, from $2.3T at the start of 2022 — a decline of 30% in about 3 weeks.
  • Then, the collapse of the terraUSD stablecoin in May 2022, followed by the liquidation of hedge fund Three Arrows Capital in June, impacted the market as Bitcoin lost about 58% of value in the 2Q22, reporting its worst quarterly performance since 2011.

What are crypto banks?

Crypto banks (also referred to as digital asset institutions) allow users to buy, sell, and hold digital assets and offer financial tools such as prepaid debit cards and access to cryptocurrency wallets.

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  • Crypto banks can offer higher yields than traditional banks because they do not have the same reserve requirements.
  • These platforms may be easier to access than traditional banks because there is less paperwork , fewer regulatory requirements, and credit checks involved in lending and borrowing crypto.
  • Unlike traditional regulated banks, crypto lenders are not limited by restrictions on the capital they must retain or rules regarding transparency of reserves.
  • These customers face additional risks due to volatility in the market, tech failure, and hacks that can impact the value of their savings.

What's next for crypto banks?

  • Crypto banks such as Nexo are partnering with incumbent investment banks to acquire startups in the industry. This can be a good opportunity because consolidation will help these banks improve their operational efficiencies.
  • Following the Celsius bankruptcy, these banks are expected to be more cautious and transparent. Taking steps in this direction will further help investors to start believing in their services and offerings.

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  • Regulators are now admitting that banking in all forms should cover the same protection regime as traditional finance.
    • Some of the prominent agencies in the US are defining frameworks to regulate cryptocurrencies, using their own set of methodologies and data.
    • However, a global regulatory framework is required to manage risks and threats across countries' jurisdictions.
  • Crypto banks will likely see continued growth as the uncertainty clears and a more conducive regulatory environment is developed.

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