US Bankers Remain Cautious Towards Cryptos, Despite Pro-Crypto Administration

Executives from Major Banks Warn Against Rushing into the Volatile Asset Class

As the U.S. heads towards a potentially crypto-friendlier regulatory environment under President-elect Trump, some of the nation’s top bankers are treading carefully when it comes to embracing cryptocurrencies. Despite the promises of regulatory easing and the appointment of pro-crypto officials, major financial institutions remain hesitant to dive headfirst into the volatile world of digital assets.

At a recent Reuters NEXT conference in New York, leading bankers made it clear that they are not ready to fully embrace cryptocurrencies. While U.S. regulators are expected to take a more accommodating stance under the upcoming administration, the uncertain regulatory landscape is making bankers wary.

Cautious Optimism, But Not Rushing In

David Solomon, CEO of Goldman Sachs, voiced a common sentiment among U.S. bankers when he explained that the crypto regulatory framework “has to evolve” before major banks can consider extensive involvement in the space. Speaking candidly about the uncertainty surrounding crypto regulations, Solomon emphasized that the future of this market is still unclear.

Solomon’s comments echoed a broader industry concern. Although President-elect Trump has positioned himself as a crypto advocate, promising measures like a national crypto stockpile, bankers are not willing to dive in without clarity on the rules. Trump’s pro-crypto stance has been welcomed by the digital currency community, but it hasn’t been enough to convince banks to rush toward these highly speculative assets.

Goldman Sachs, for instance, has said that it would be open to dealing with crypto if the regulatory landscape improves, but Solomon noted that the bank would need to first “evaluate” the situation before making any substantial moves.

Why the Hesitance?

Despite the promising regulatory shifts, banks are not ready to fully embrace the crypto market. There are several reasons for this cautious stance:

• Uncertainty over Regulations: Even with a potential regulatory overhaul, the rules surrounding cryptocurrency remain unclear. Bank executives want concrete regulatory frameworks before entering the market.
• Volatility: Cryptocurrencies are known for their price swings, making them highly speculative and risky investments.
• Past Market Failures: Events like the collapse of major crypto exchanges, such as FTX, have left lasting scars on the banking community.
• Regulatory Oversight: With incidents like the failures of Silvergate and Signature Bank still fresh, regulators are placing greater scrutiny on any potential exposure to crypto.

Crypto-Friendly Appointments, But No Immediate Change

Trump’s administration is set to take a crypto-friendly approach. His nomination of Paul Atkins as the new SEC chair and David Sacks as the “crypto czar” has been praised by the crypto community. These appointments signal a shift towards a more accommodating regulatory framework. However, the new environment isn’t enough to prompt banks to rush into digital assets.

Robin Vince, CEO of Bank of New York Mellon, also expressed caution during the Reuters conference, urging for “appropriate guardrails” before any significant policy shifts in crypto. Vince underscored the importance of waiting for new regulations to be “battle-tested” through multiple economic cycles before they can be fully trusted.

Vince’s comments are a reminder that banks are still grappling with the aftermath of previous crypto market crashes. The industry’s ongoing instability has made institutions hesitant to expose themselves to what they see as an unproven and risky asset class.

The FTX Fallout and its Lingering Impact

One of the most significant events affecting banker sentiment is the collapse of the FTX exchange, one of the biggest scandals in crypto history. The debacle left many investors and institutions questioning the reliability and security of digital asset markets. The fallout from this event has made it even more difficult for banks to see the potential in crypto without fearing another market disaster.

Additionally, recent events such as the collapse of Silvergate and Signature Bank have heightened concerns among regulators. The downfall of these lenders, both of which were closely tied to the crypto industry, has intensified the scrutiny that banks face when considering exposure to cryptocurrencies.

“I’m concerned that some lessons from previous crises may be forgotten,” said one unnamed banker. His comments point to the risk that regulatory bodies may overlook the significant issues that have plagued the crypto market in the past. Despite these concerns, however, demand for crypto services among bank clients remains limited, even as regulations seem to loosen.

What’s Next for Crypto and Banks?

Despite the current uncertainty, some bankers see potential in digital assets in the long term. Matt Gellene, head of Consumer Investments and Employee Banking & Investments at Bank of America, echoed the sentiment that client demand for crypto is growing, though it remains “limited” for now. As regulations become clearer, it’s possible that more banks will begin to open up to the idea of crypto as an asset class.

However, for the time being, most U.S. banks are taking a wait-and-see approach. The potential for regulatory clarity and the appointment of crypto-friendly officials may set the stage for future developments, but until then, bankers are holding back on fully embracing the sector.