After the last several months, the cryptocurrency sector needs to get in the win column.
Prices–along with investor confidence–took a severe beating during the “crypto winter,” where digital currencies lost something like $2 trillion in value.
Mastercard (MA) is looking to make things smoother between banks and crypto investors.
The credit card giant unveiled its Crypto Source program on Oct. 17, which the company said will “enable financial institutions to bring secure crypto trading capabilities and services to their customers.”
The program will help banks with crypto analytics, transaction monitoring, anti-money laundering, compliance, cybersecurity, and biometrics.
The suite of offerings will also include crypto spend and cash out capabilities through such products as crypto cards, open banking and cross border services.
'Any News is Good News'
The company is expanding its partnership with the crypto trading platform Paxos Trust.
Paxos will provide crypto-asset trading and custody services on behalf of the banks, while Mastercard will use its technology to integrate these services into banks’ interfaces, which the company said result “in a seamless experience for the consumer.”
Founded in 2012, Paxos was the first bitcoin exchange to be licensed by the New York State Department of Financial Services.
Mastercard said its 2022 new payments index found that 29% of respondents globally hold cryptocurrency as an investment, with another 65% indicating a preference for crypto-related services to be provided by their current trusted financial institution.
Frank Corva, senior digital assets analyst with Finder, said that “at this point in this crypto bear market, any news that supports broader crypto adoption is good news.”
“So, it’s great to see Mastercard helping its clients to gain some further exposure to crypto markets,” he added. “That being said, it’s important for Mastercard users who might employ Mastercard’s new crypto services to understand that Mastercard seems to only be offering IOUs for crypto assets.”
Corva explained that Mastercard is teaming up with Paxos as well as other financial institutions to offer its clients crypto custody and trading services.
'Good Track Records'
“This is good in that it allows clients to get some exposure to the crypto asset class for the purpose of speculation, but it doesn’t grant clients true ownership over their digital assets,” he said. “To truly own your crypto assets, you have to hold the private keys to them, and it doesn’t seem that Mastercard’s program gives users the ability to do so.”
Corva said that this isn’t necessarily a bad thing, especially for users who don’t want to deal with the responsibility of managing their own private keys, “but it does contrast with the ethos of crypto, which is centered around self-sovereignty.”
Blockchains are “essentially banks in the form of a decentralized computing cloud that store and protect digital assets as well as facilitate their transactions,” he said. “When centralized financial platforms hold the private keys to your digital assets, you are adding counterparty risk to your investment.”
Luckily “Mastercard chose some counterparties with good track records to help facilitate the new services it will offer,” Corva said.
“It is exciting to see another major financial institution like Mastercard delving deeper into the crypto space,” said Itai Avneri, Deputy CEO & COO of INX.
Demanding More Opportunties
“While the so-called 'crypto winter' is creating havoc amongst retail investors, this is another example of institutions continuing to build on the foundation set by the retail community over the past decade,” he said.
Avneri said that institutional involvement continues to grow as the potential payment and investment opportunities and efficiencies of cryptocurrencies develop into institutional offerings.
In addition, he said, as regulators provide more clarity around digital assets and their role in the greater digital economy, “it's becoming clear that institutions cannot turn a blind eye to the market.”
“Their clients/customers are inquiring and even demanding more opportunities for exposure, which is leading companies like Mastercard to further diversify their portfolio to generate value,” Avneri said.
”The only way they can do this securely and effectively is to work with regulated trading platforms – specifically platforms that are broker dealers, ATS and have money transmitter licenses,” he said.