Friday, February 3, 2023
  • International crypto exchanges Binance and Ovex are among the names that have publicly made statements about buying banks
  • The regulation of banks also amounts to inclusion and a seat at the table
  • Banks’ other advantage is that they are plugged into the existing infrastructure

A trend is emerging where cryptocurrency exchanges are talking about plans to acquire banks. International crypto exchanges Binance and Ovex are among the names that have publicly made statements amounting to such, but there’s a method to their ‘madness’.

Crypto going mainstream

Cryptocurrency’s popularity is now pushing into the mainstream. This applies the world over, but we can see specific shifts in Africa hinting towards the mainstream adoption of cryptocurrency, albeit slowly.

The Central African Republic broke rank with other Central African countries to adopt Bitcoin as a legal tender as well as launching the Sango digital currency. South Africa recognised cryptocurrency as a digital asset in the country’s financial laws. Close neighbour Namibia enabled the settlement of transactions in cryptocurrency where both parties consent. In East Africa, Kenya’s parliament is looking at a bill to tax cryptocurrency.

Not all of these moves may look positive, but they amount to the gradual adoption of cryptocurrency though in different expressions.

Binance is considering buying a bank

Binance can’t seem to stop breaking cryptocurrency news lately. And for all the right reasons. Recently statements by Binance CEO Changpeng Zhao (CZ) about the firm’s merger and acquisition plans made waves as the possibility of buying a bank was floated. Binance reportedly has up to US$1 billion to spend on M&A transactions, some of which could go towards acquiring a bank.

CZ also stated that they would look wider at financial institutions with experience in payments and transaction processing. Binance has recently been in the news for creating a South African Rand payment gateway, a Nigerian naira payment gateway and opening up to Apple Pay and Google Pay in Europe. It’s not hard to see where the motivation for acquiring banks and financial institutions comes from.

Binance, the world’s largest cryptocurrency exchange, is looking at the big picture and mainstream adoption for them is more about bridging the tradFi world with the Defi world.

Ovex Exchange aims to buy a bank

Closer to home, South African registered cryptocurrency exchange Ovex also discussed buying a bank. In October, CEO Johnathan Ovadia spoke on the idea. Citing the change in regulation that had occurred in South Africa, with crypto being recognized as digital assets.

Ovadia noted that Ovex was larger and more profitable than some of the smaller banks in South Africa. He also acknowledged that crypto exchanges are the bridge between the traditional and decentralized finance worlds. As such, they are well poised to connect the new entrants into the market thanks to South Africa’s regulatory position.

Ovex earlier this year announced plans to expand into 20 African markets by the end of the year. Accessibility of the new frontier is Ovex’s goal. As such, they have made inroads into making cryptocurrency available to Africans. In addition to being a crypto exchange, they provide interest accounts on popular cryptocurrencies, including Bitcoin, Ether, Binance and Ripple.

Why is this important for crypto

In the minds of many, cryptocurrency and De-Fi are opposed to everything that banks and Trad-Fi stand for. This isn’t quite the case. This would be equating the digital camera to being opposed to film cameras; digital cameras were made tio improve photography, not to end it.

Similarly, the world of cryptocurrency and de-fi is the new frontier of money. They still need to be connected to the existing frontier. That is why there was excitement when Binance added support for direct buying with the South African Rand and Nigerian Naira. Both these moves eased adoption and allowed South Africans and Nigerians to buy crypto through the banks they have always known and sometimes loved.

Banks are familiar

Banks are familiar. This is not just to the person on the street but to the regulatory authorities in various jurisdictions. So much so that when South Africa started warming up to cryptocurrency, it was through advice from the South African Reserve Bank to traditional banks that they should find ways to work with crypto providers. To bring them into the fold.

Banks are plugged in

Banks’ other advantage is that they are plugged into the existing infrastructure. This is important when you look at it from a utility perspective. Crypto is great and all until you need to buy a coke, and nobody accepts it. It’s safe to say banks have this part of things well figured out. It doesn’t seem like much, but have you ever thought about how much goes into allowing a person to pay for a product in China with their Kenyan debit card?

Banks are regulated

This may seem counterintuitive at first. Crypto and all it stands for are juxtaposed with the regulation-heavy world of banking. That’s well and good in theory, but in reality, regulation is the authority to work in a territory. The regulation of banks also amounts to inclusion and a seat at the table, if you will. Authority, as crypto enthusiasts have found, is important. With the slow pace of regulation of cryptocurrencies around the world, especially in Africa, another way will have to be found to get that coveted seat at the table, and the acquisition of banks may well be that way.

However, the acquisition of banks is not easy, no matter where in the world you are. Thanks to preceding events such as the Asian Financial Crisis and the 2008 global financial crisis, a lot has been done to make sure the financial world is better insulated from the shocks of financial crashes and the behaviours that lead to them. So the rules around who can own a bank, what they have to provide in capital, and how they work is no small task. Crypto exchanges may find this the hardest part. Add to that, unlike crypto exchanges that can quickly scale multiple territories; banks do not enjoy such luxury, with each new territory requiring its own regulatory standards to be met.

However, acquiring banks may not be the best way for crypto exchanges to integrate into the existing financial world. We will see if this talk amounts to any real action in the long run. Do you think this is the right move for cryptocurrency exchanges? We’d love to know your thoughts in the comments.

Read: Bitcoin mining vs bitcoin buying: What is more profitable for Africans?

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