In 2019 when ABS became the first Private Bank to bridge the world of crypto finance and regulated banking in order to serve clients who were seeking custody for digital assets and a suite of associated services, we expected an eventful ride. We got one - Crypto's short term valuations roller coaster has been extraordinary, creating and destroying hundreds of billions of notional value over the last five years.

However, like our clients, we have remained focused on the long term properties of this exciting space. We have learned to distinguish between noise and the overall direction of travel which has seen a steady increase in regulatory and administrative engagement and exponential growth in the number of crypto millionaires - serious money requiring serious services.

But, right now, there is a significant shift that deserves calling out, because it is a game changer. In the last few months, Institutions have "got" crypto and there is a wave of money following that trend. That heralds no less than the beginning of the end for much of the separation of the crypto and traditional worlds.

The starting gun for this wave of professional money was, fairly obviously, the USA election with the incoming administration taking a progressive approach to Crypto - even recently announcing inclusion of crypto currency in the Federal reserve.

It is hard to quantify the exact institutional investment in cryptocurrencies since November. Numbers are not publicly disclosed, but the combination of government initiatives and private sector endorsements all signpost a substantial and growing Institutional interest and activity in the crypto space. One interesting lead indicator is that crypto ETFs are now the 3rd largest asset class in a $15 trillion ETF industry behind only equities and bonds and ahead of precious metals, commodities, real estate funds and multi-asset funds. Retail investors can buy ETFs of course but the kind of momentum to put an asset class in that position just a year after the first crypto ETFs were approved requires serious Institutional heft.

Certainly, our own experience in terms of onboarding Institutional clients, new trading patterns and the products and services that are in demand all point to the same trend: It is the services that bring Institutions qualities that are associated with traditional markets that are growing significantly. For example, our new FX platform that enables Bitcoin, Ethereum and Solana to be quickly and easily traded on the same app as Swiss Franc, USD and Euro has seen a significant spike in demand. As have services that enable derivative products and loans against crypto assets and services being developed that are geared towards asset managers looking to set up instruments such as crypto managed accounts or managed certificates.

It is a broad range of offerings but what they have in common is that they enable the qualities that Institutions demand from traditional market services. An ecosystem with facilities to support complex strategies with diversification, ease of monetisation and liquidity.

This emerging crypto/traditional ecosystem will shift the tectonic plates of the financial services world. Because the crypto space, previously shaped and led by retail involvement with investors that often prided themselves on operating in a parallel or even ostracised financial world, is (like it or not) now being shaped by Institutional involvement.

It is not hard to call some of the outcomes: Convergence of the traditional and crypto space will accelerate rapidly. Not only will Institutions demand it but the organisations with the skills and capacity to create the ecosystem these established players require are more incentivized/monetized to do so than they ever have been before.

Crypto will also get safer although the “Wild West” aspects of the space will not disappear completely anytime soon. Those that want to speculate on new, highly volatile, currencies or even Memes will still be out there, as will those that want to take advantage of them. But it seems likely that Institutional involvement will bring significant focus on the currencies deemed credible and, in effect, accelerate the process of creating a different class of crypto-currencies as tier one currencies work to prove their business viability and join Bitcoin as a recognised reserve of value. It may well still be possible to invest in a speculative or VC fashion to try and catch the next emerging Bitcoin but the differences between the currencies deemed worthy of serious transactions and the rest will become much clearer much faster.

We are conscious that not all Private Banks will have had 5 years operating in the space to build a brand and complex capabilities in the digital assets space. However, with Henlys Crypto Wealth Report 2024 (covered by PBI here) stating that there are 172,300 people worldwide holding over $1m in crypto assets, a 95% increase from the previous year, and that the number of Bitcoin millionaires has also increased to 85,400, up 111%; it seems reasonable to assume that our industry has been at the vanguard of that interaction between crypto and traditional financial worlds so far.

Collectively, as Private Bankers, we should have a valuable head start and should be working to capitalise on it as I write - bridging from sophisticated crypto offerings in the HNW, Private Banking and Wealth Management space to capitalise on this important and rapidly evolving market and the new realities Institutional investment in the crypto space will create. But it would be wise to move fast, because the other thing about Institutional investors requiring a service is that it is a certainty that that demand and the financial opportunity it creates will not go un-met for long.

Rani Jabban, is Managing Director, Arab Bank Switzerland.

"Private banking is strolling to catch an accelerating crypto train" was originally created and published by Private Banker International, a GlobalData owned brand.

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