A major hurdle when establishing a cryptocurrency fund is finding a banking institution that is willing to provide banking facilities.
Just obtaining a bank account to receive investor subscriptions and pay out redemptions can be difficult. Currently, all of the major international banks will not accommodate a crypto strategy fund.
They claim that to do so would present them with an unacceptable level of risk. Furthermore, they insist this position is consistent with global central banks.
Central Bank Warnings
The European Central Bank has constantly warned about the dangers of investing in digital currencies. The ECB vice president (Vitor Constancio) compared Bitcoin with the 17th-century tulip bubble. He said that Bitcoin isn’t a currency but a ‘tulip’.
The ECB also warned that Bitcoin was unstable and had links to tax evasion and crime.
China has cracked down on private digital issuers, banning exchange trading of Bitcoin and others.
In Germany, the Bundesbank has been particularly wary of the emergence of Bitcoin and other virtual currencies. Board member Carl-Ludwig Thiele said that that Bitcoin was “more of a speculative plaything than a form of payment”.
The Bank of England believes Blockchain technology has great promise in revolutionising the financial sector. However, it does not consider these digital assets as currencies and is extremely negative about their emergence. It judges them as high-risk assets which have links to crime and money laundering.
The Central Bank of India also opposes cryptocurrencies. It believes that they can be a channel for money laundering and terrorist financing. India currently considers the use of cryptocurrencies as a violation of their foreign-exchange rules.
In the USA, the attitude is less dismissive of cryptocurrencies. Randal Quarles, the vice chair for supervision at the Federal Reserve, said on in December 2017 that while the central bank has no policy towards regulation of Bitcoin it is “worth thinking about”.
Jerome Powell, chair of The Fed, said the volume of cryptocurrencies could at some point “matter” when it comes to monetary policy. Australia, Brazil, the Netherlands, Canada and Norway share this attitude too.
Implications For Crypto Funds
With the negativity from central banks towards digital assets, it’s not surprising that finding a banking institution can be difficult.
But difficult does not mean impossible. Ifina has established banking relationships with numerous banking institutions that will accommodate cryptocurrency funds.
These banks are not the major international banking institutions. However, they reside in jurisdictions with high regulation, such as Switzerland, Malta, Gibraltar and Lichtenstein.
These banks offer their services with the blessing and support of the local regulators and banking authorities. Indeed, these jurisdictions are openly embracing the cryptocurrency technology.
Although there are several USA banks that will offer banking facilities to crypto funds, they tend to cater for the larger sized funds and those which are marketed to US investors.
The EU banking institutions that Ifina has relationships with do not provide US Dollar banking facilities to crypto funds as their US correspondent banks will not process USD wire transfers in and out of a crypto fund.
Therefore the crypto funds that we offer clients have to be denominated in any currency other than USD.
Opinion is that as time goes by, the major central banks and with them the major global banking institutions, will open their minds to the crypto revolution and start to become more involved.
Evidence of this is already out there. Barclays Bank having recently partnered Coinbase, the first partnership between a UK major bank and a cryptocurrency exchange.
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