Banks Are an Odd Place to Keep Your Crypto

One of cryptocurrencies' biggest selling points is that they allow people to break away from traditional banking systems. Now banks are hoping to convince you otherwise.

As U.S. regulators look more closely at the world of crypto, it's likely that American banks will soon be following their big foreign counterparts in offering retail customers the ability to trade and store digital coins. But why would someone choose to invest through a bank instead of through one of the big crypto exchanges, such as Coinbase? I can't find a lot of reasons why.

Figuring out the best place to buy and sell cryptocurrencies will really come down to what's most important to the investor. If having some sort of safety net to help deal with unexpected problems is a top priority, investing through a bona fide bank may be the best route. By most other measures though, it's hard to see where banks offer any advantage.

Right now, only high-net-worth and institutional customers are offered cryptocurrency services by major U.S. banks, but that may change soon. Regulators are expected to provide more clarity this year on what kinds of crypto-related activities will be acceptable. Despite Bitcoin's volatility and current rough patch, it's reasonable to think that, with clearer rules, banks will be jumping in more aggressively.

For their part, consumers seem to be ready. A December 2020 survey by Cornerstone Advisors showed that 60% of cryptocurrency holders would definitely use their bank if it offered them the opportunity to invest in digital assets, and another 32% said they might. Only 4% said they wouldn't move over from the exchange they use.

Signals from regulators, along with legal precedent, indicate that cryptocurrencies would probably be treated as securities (not cash deposits) from a consumer-protection standpoint. That means that buying a virtual coin through a bank would be akin to purchasing a stock through a bank's investment arm.