CoinBureau – Wall Street’s Secret Plan For Crypto: What The Banks Are Doing!! (27.12.2024 Summary)

The relationship between Wall Street and crypto has always been complicated. According to CoinBureau, big banks like Goldman Sachs, JP Morgan, and HSBC have been experimenting with blockchain technology for years, but what are they really planning? Here’s what you need to know.

Banks Love the Tech, But Not Crypto Itself

Wall Street is all in on blockchain, but not the kind you see in Bitcoin or Ethereum. They’re building private, permissioned blockchains - essentially centralized databases with blockchain features like faster transactions and easier regulatory compliance. These systems are designed for efficiency, not decentralization.

Why? Banks see blockchains as a way to modernize their outdated infrastructure, which still takes days to settle trades. Private blockchains streamline these processes, but they sacrifice the trustless and transparent qualities that make public blockchains revolutionary.

Fragmentation and Siloing Are Major Issues

While banks are investing heavily in blockchain projects, many are focused on building their own siloed systems. This is causing fragmentation, as each institution creates its own proprietary blockchain, much like how Ethereum’s layer-2 solutions can fragment liquidity. Without shared infrastructure, these projects risk replicating the inefficiencies they aim to solve.

Goldman Sachs seems to recognize this. The bank plans to spin out its blockchain, GS DAP, into an independent, industry-owned platform. This could pave the way for more collaboration and interoperability in the financial sector.

Crypto’s Role in the Bigger Picture

Despite their enthusiasm for blockchain, banks remain wary of cryptocurrencies. Regulations have kept many institutions on the sidelines, limiting them to derivatives and custody services rather than direct crypto trading. However, this could change soon. With growing political support and potential regulatory reforms, banks may begin offering crypto spot trading and related services.

The Future of Asset Tokenization

Both crypto and traditional finance agree that tokenizing real-world assets (RWAs) is a huge opportunity. Public chains like Ethereum have seen success with tokenized products, as demonstrated by BlackRock’s use of Ethereum for its tokenized money market fund. Still, banks seem reluctant to rely on public chains, favoring their private networks.

Interoperability solutions, such as Chainlink and Axelar, could bridge the gap between private and public chains, potentially creating a hybrid ecosystem. Even limited collaboration between Wall Street and public blockchains could bring enormous capital inflows to the crypto space.

The Takeaway

Wall Street’s interest in blockchain signals a growing recognition of its transformative potential. While banks are still cautious about crypto, their embrace of blockchain technology could lead to significant developments in tokenization, on-chain finance, and beyond. If public and private blockchains can find ways to work together, the future could hold massive opportunities for both crypto and traditional finance.