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Investors drove up the prices of banks exposed to crypto.
The time of dreams
Investors are now buying
Bitcoin
through exchanges such as
Coinbase
or apps like
PayPal
.
This could change as banks begin to dabble in crypto trading and custody services.
Some 300 banks plan to roll out Bitcoin trading on mobile apps in the first half of 2022, according to a report published this week by
JP Morgan
.
Many of these banks work with NYDIG, a
Bitcoin
financial services company that has already made some inroads in banking, including a sub-custody deal with US Bank.
“While fintechs and crypto-native companies have a head start in connecting retail customers to crypto, some forward-thinking banks are now fast followers with the help of companies like NYDIG,” said said JP Morgan analyst Steven Alexopoulos in the note.
Alexopoulos highlighted
Synovus Financial
(ticker: SNV) as a bank getting into bitcoin. Synovus, a regional bank with $57.4 billion in assets, discussed plans to offer crypto trading to retail clients during its presentation to investors this week.
“We entered the crypto space…with NYDIG,” Synovus said. The company added that it was evaluating “money movements on the blockchain” and said crypto payments and digital banking will be targeted in 2022.
Synovus would not be the first bank to get into crypto. Oklahoma-based Vast Bank bills itself as the first nationally chartered U.S. bank to offer crypto through a mobile app. The bank says traders can purchase tokens such as Ether, Aave, Cardano, and Chainlink, in addition to Bitcoin.
Major US banks and financial institutions are also getting into crypto, but doing so more with institutional custodial and trading services.
States such as Wyoming have adopted banking licensing rules for digital assets and have licensed a few companies as “special purpose depositary institutions” or SPDIs. Among them are Kraken, the major cryptocurrency brokerage, and Wyoming-based Avanti Bank.
Federal banking rules are not compatible with crypto, however. The Federal Deposit Insurance Corp. does not insure deposits of Bitcoin or other cryptocurrencies. And Wyoming-based SPDIs have not received primary accounts with the Federal Reserve, although Fed Chairman Jerome Powell said in January that the Fed “will make progress” on granting the Federal Reserve. access to PIDS. Banks use a main account at regional Fed banks to settle certain types of transactions and directly access the Fed’s payment system.
The Biden administration is also reporting that crypto banking charters face great hurdles. “The rapid introduction of a variety of crypto-asset or digital asset products into the financial system could pose significant risks to the safety and soundness and the financial system,” said Martin Gruenberg, Acting FDIC Chairman, in a statement this week. The FDIC said digital assets will be a policy priority this year and that “agencies will need to provide strong guidance to the banking industry on managing the prudential and consumer protection risks raised by crypto-asset activities.”
Even if crypto does not bring substantial revenue to banks, it could be a new way to generate fees and retain customers for other products and services.
Investors drove up the prices of banks exposed to crypto.
Signature Bank (SBNY), for example, is developing a digital asset payment platform. It trades at 18 times estimated 2022 earnings. That’s a premium to the industry average of 14 times the earnings of regional banks, or 15 to 16 times the shares of big banks like
Wells Fargo
(WFC) and
Comedy
(AMC).
Synovus still seems relatively cheap at 12 times the benefits. Stocks are returning 2.6% and are up nearly 10% this year, outpacing the
Invesco KBW Bank ETF
(KBWB). The banking industry as a whole benefits from rising interest rates, which may make lending more profitable, but Synovus could also benefit from investor enthusiasm for its Bitcoin plans.
Crypto-related profits could be the icing on his earnings in a year or two.
Write to Daren Fonda at [email protected]
