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United States’ Third Largest Bank Wells Fargo to Reveal Coin in 2020

In a press releasepublished on Sept. 17, Wells Fargo had expressed the intention of the bank to create a payment network that would be based on distributed ledger technology (DLT).

Wells Fargo Digital Cash is the name of the dedicated platform that payments will be working with.

The bank says that this concept will have to undergo internal discussions next year and that it would be pegged to the US dollar. In the long run, the bank sees the possibility of multiple applications running using this platform as their basis.

Lisa Frazier, head of the bank’s innovation group, made a comment in the press, she said, “We believe DLT holds promise for a variety of use cases, and we’re energized to take this significant step in applying the technology to banking in a material and scalable way, Wells Fargo Digital Cash has the potential to enable Wells Fargo to remove barriers to real-time financial interactions across multiple accounts in multiple marketplaces around the world.”

No Bitcoin, please

As commonly known, the banks have always been seen to take an antagonistic stance towards decentralized cryptocurrencies and what they stand for. The executives have dished out strong warnings against innovations that aren’t within the control of the fiat-based financial system at various points.

In July, Wells Fargo made it to the news headlinesafter it was confirmed that it was refusing to allow domestic banking customers to complete any crypto-related transactions.

Meanwhile, the dollar-backed digital currency Libra, being worked on by Facebook is also set to be launched in Q2 2020. The digital currency has been drawing a lot of attention from the government across various jurisdictions.

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Wells Fargo Injects $5M into Blockchain Startup Bridging Crypto Exchanges and Banks to Expand in Asia

US Banking Giant, Wells Fargo is investing in blockchain startup focusing on forensics, Elliptic. Wells Fargo Strategic Capital (WFSC), the venture capital arm of the bank, has decided to inject $5 million into Elliptic’s Series B funding round.

The funding from Wells Fargo brings Elliptic’s total series B funding to $28 million, while the firm raised $23 million last September. Investors in the last round include Japan’s SBI Group and the investment branch of Spanish bank Santander, SignalFire, AlbionVC and Octopus Ventures.

The banking giant’s investment into the blockchain startup looks to encourage the latter’s expansion in Asia, to bring additional resources to the firm. Wells Fargo is also looking to accelerate the development of Elliptic Discovery, the compliance product that allows banks to adjust to the risks of crypto transactions.

The problem

Most banking giants have avoided cryptocurrency-related businesses as the risk of dealing with crypto transactions had posed more threats than benefits. Although crypto businesses have been ignored by bigger banks, smaller financial institutions such as US-based Silvergate has risen to the challenge.

The solution: Elliptic Discovery

The product, Elliptic Discovery provides a compliance solution for banks worldwide while collecting profiles of over 200 global cryptocurrency exchanges to allow banks to manage risks associated with crypto transactions.

Based in London, the cryptocurrency compliance firm has been collecting data since 2013 and offers a wide range of identifiers and risk indicators when exposed to crypto transactions through exchanges.

According to James Smith, the CEO and Co-Founder of Elliptic, he explained that the lack of access to the crypto industry has caused “zero-tolerance” towards the new asset class and has caused frustration with customers. Banks have “remained blind to the actual risk posed by their exposure to crypto-assets.”

Wells Fargo Digital Cash

Wells Fargo previously expressed its intention to create a payment network on blockchain, that would be pegged to the US dollar. The bank believes that distributed ledger technology “holds a promise for a variety of use cases.” With the new platform, it would allow the bank to remove barriers to real-time financial interactions across multiple accounts in different marketplaces around the world.

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Wells Fargo Offers Crypto Funds Options for Premium Clients

Wells Fargo & Company (NYSE: WFC) announced Wednesday that it would establish professionally managed crypto funds for its premium clients.

In the report titled “The Investment Rationale for Cryptocurrencies”, the US bank said that its wholly-owned subsidiary – The Wells Fargo Investment Institutes (WFII) – stated that the risk associated with cryptocurrency implied that it would favour “qualified investors. WFC considered digital assets by accepting digital currencies as an alternative investment, the company said:

“WFII believes that cryptocurrencies have gained stability and viability as assets, but the risks lead us to favour investment exposure only for qualified investors, and even then, through professionally managed funds,”

This development came as the Bitcoin price dropped after China stated that it was imposing fresh curbs on crypto assets.

China’s announcement took the price of Bitcoin plunged below $34,000 for the first time in three months on Wednesday and caused a sell-off chaos to other cryptocurrencies, including Ethereum (ETH) and Dogecoin (DOGE).

Bitcoin’s value experienced a freefall on Thursday after China banned payment firms and financial institutions from offering cryptocurrency services and warned investors against speculative cryptocurrency trading.

Bitcoin had already experienced a sharp decline last week after Elon Musk stated that he would no longer accept BTC payments for Tesla motor vehicles.

Targeting Affluent Customers with Crypto

Wells Fargo’s decision was the latest development in the rising number of major US banks starting to offer crypto asset services to clients.

This month, Goldman Sachs Group allowed Wall Street investors to trade with a derivative tied to Bitcoin prices. The bank opened non-deliverable forwards, a derivative tied to Bitcoin’s price that pays out in cash.

Last month, JPMorgan Chase announced that it is preparing to allow its wealthy clients to invest in an actively managed Bitcoin fund Additionally, Morgan Stanley also became the first US major bank to provide its rich clients access to Bitcoin funds since March. The bank considers Bitcoin as suitable for people with “an aggressive risk tolerance” who have at least $2 million in assets held by the bank.

In February, Bank of New York Mellon, the country’s oldest bank, announced that it began financing Bitcoin and other cryptocurrencies to its asset clients.

Wells Fargo Sets Up Passive Bitcoin Fund for Wealthy Clients

Wells Fargo investment bank has filed with the US Securities and Exchange Commission (SEC) for a private Bitcoin fund.

According to seekingalpha.com media outlets, Wells Fargo has registered for a passive Bitcoin fund with the US regulator to provide its wealthiest clients with an indirect vehicle for investing in cryptocurrency.

However, the move contrasts with earlier reports that the bank would offer an actively managed crypto fund. Business Insider reportedly disclosed that Wells Fargo started offering cryptocurrency exposure to its wealthy clients earlier this month. In May, the bank revealed that its team was preparing to offer its clients an actively managed crypto solution.

The SEC’s filing indicates that Wells Fargo has partnered with NYDIG and FS Investments on the Bitcoin offering. Wells Fargo will obtain certain fees when its clients invest in the FS NYIG Bitcoin fund. Both asset manager FS Investments and Financial services firm New York Digital Investment Group (NYDIG) have been working together on Bitcoin investment funds in the past.

As of Thursday, August 19, the new fund, FS NYDIG Bitcoin fund, did not have any sales at Wells Fargo.

Meanwhile, JPMorgan Chase & Co also registered for a passive Bitcoin fund with the US SEC during that same day. The report shows that the bank partnered with NYDIG and will get a percentage of sales through subsidiaries. At the time of the filings, JPMorgan’s Bitcoin fund had not completed any sales.

Bank Clients Interested in Crypto

With the crypto move, Wells Fargo and JPMorgan have joined a rising number of investment banks that have offered crypto investments to clients, including Citigroup, Goldman Sachs, and Morgan Stanley.

The efforts by these major banks to launch access to funds that enable ownership of Bitcoin is a significant step for crypto acceptance as an asset class. This confirms that bank clients demand exposure to cryptocurrency.

Bitcoin’s rally put Wall Street firms under pressure to consider getting involved in the nascent asset class in the past year.

At least for now, major banks are only allowing their wealthy clients access to volatile assets.

This year, Morgan Stanley became the first major US bank to provide its wealthy clients access to Bitcoin funds in March. The bank considers Bitcoin as suitable for people with “an aggressive risk tolerance” who have at least $2 million in assets held by the bank.

HSBC and Wells Fargo Utilize Blockchain Technology, Enhancing Foreign Exchange Transactions

HSBC and Wells Fargo have signed a strategic agreement to use a settlement ledger powered by blockchain technology when undertaking foreign exchange (FX) transactions. This move is deemed a stepping stone towards minimizing settlement risk.

In a statement, Mark Jones, co-head of Macro, Wells Fargo Corporate & Investment Bank, welcomed this move and said:

“We are extremely excited to be collaborating with HSBC on a project which places both organizations at the forefront of blockchain innovation. We believe this will be the first step of many utilizing transformative technology across our industry in the years ahead.”

Using blockchain technology, two banks will enjoy efficient Payment-vs-Payment (PVP) settlement netting. Furthermore, real-time transparency will be availed in the FX transactions.

The blockchain-based settlement ledger is also expected to reduce associated settlement costs in the $6.6 trillion-a-day foreign exchange market.

The agreement also means that the two leading financial companies will bypass the nearly two-decades-old Continuous Linked Settlement (CLS) system used for FX transitions.

The ledger will be used to process the US dollar, Canadian dollar, Euro, and British pound sterling transactions with plans to extend to other currencies soon.

Mark Williamson, the global head of FX partnerships & propositions at HSBC, noted that this was a step forward towards more financial innovations.

“As financial services continue to digitize the store of payment and value on blockchain, we are delighted to work with Wells Fargo in the adoption of this important cross-border digital backbone for the confirmation and settlement of Foreign Exchange trades.”

Meanwhile, the central banks of France and Switzerland, together with the Bank of International Settlements (BIS), successfully conducted a wholesale Central Bank Digital Currency (CBDC) trial involving the nations’ fiat notes.

Bitcoin Closes to Hyper-Adoption Phase similar to Mid-to-Late 1990s: Wells Fargo

It might not be too late to jump on the Bitcoin bandwagon because the leading cryptocurrency is just getting to the inflexion point of hyper-adoption, according to a report by international financial services giant Wells Fargo.

The “Understanding Cryptocurrency” report seeks to tackle the disparity about either being too early or too late to invest in cryptocurrencies. Wells Fargo offers a conviction that cryptocurrencies are viable investment vehicles through a global investment strategy team, but they are still early in their investment evolution cycle.

Per the report:

“Cryptocurrency adoption rates look to be following the path of other earlier advanced technologies, particularly the internet. If this trend continues, cryptocurrencies could soon exit the early adoption phase and enter an inflection point of hyper-adoption … for the internet, that point was the mid-to-late 1990s.”

Source: Wells Fargo

From 1996 to 2000, internet usage grew from 77 million to 412 million. By 2010, the rate had grown exponentially to hit 1.98 billion, with the current global internet use sitting at 4.9 billion.

Therefore, Wells Fargo believes it’s not too late to join the Bitcoin party despite the top cryptocurrency recording a compounded annual rate of 216% since its first transaction was recorded in 2010.

The company noted:

“We see cryptocurrencies in the ‘early, but not too early’ investment stage, which is why we have emphasized investor education.”

The report added that shakeout events are the norm in the early stages of investing, and cryptocurrencies are not an exemption, with at least 1,700 or 40% going bust following the 2017 shakeout event.

“Early-stage investing is often fraught with violent boom and bust cycles, as many a dot-com company and investor can attest from 20 years ago. More than 16,000 cryptocurrencies exist today, and if history is any guide, many will fail (or at least fail to scale),” per the study.

In December 2020, on-chain analyst Cole Garner noted that Bitcoin was at a critical inflexion point in its adoption journey as institutional investors joined.

Crypto Bank Silvergate Capital Receives Bullish Rating from Wells Fargo

Silvergate Capital, a crypto state-chartered bank based in California, has received a bullish rating from Wells Fargo, which initiated coverage on the digital asset company with an overweight rating based on rising interest rates and prospects for further growth in its exchange network.

In a note, Jared Shaw, a Wells Fargo analyst, stated that Silvergate provides an opportunity for investors. The report further mentioned that the ongoing institutional adoption of cryptos and product innovation should help maintain Silvergate Capital’s (SI) growth profile.

Shaw wrote in a note that the current bear market makes an attractive entry point for institutions investing in cryptocurrencies. “As rates rise, higher spread income will come from a zero-cost deposit base, and further growth in SEN Leverage and the rollout of an SI-issued stablecoin payments network represent future opportunities,” the report stated.

Wells Fargo mentioned that the market is in the early stages of cryptocurrency and blockchain adoption. The note said that Silvergate offers a regulated and FDIC-insured platform for investors looking to on-ramp and off-ramp U.S dollars into the digital asset ecosystem.

The analyst pointed to Silvergate’s (SI) as the “biggest driver of deposits” and digital customer growth, as its client base has been growing at a 35%-40% rate year on year since 2019. The note further pointed out that Silvergate has developed a strong network impact via its Silvergate Network (SEN), which is used by some of the leading exchanges and institutions in the digital asset space. The report also stated that Silvergate plans to launch its own U.S.-based stablecoin payments platform late this year, unleashing new potential revenue opportunities.

The note stated that it “should drive much of the bank’s near-term profitability, as 77% of assets are securities (55% floating) and the loan book is also heavily floating-rate,” the note stated.

Wells Fargo’s view contrasts with its peers like Morgan Stanley, which gave Silvergate an equal weight rating last week.

Bitcoin Crashes Again

Wells Fargo’s ‘BUY’ rating for Silvergate comes despite the renewed crypto crash triggered by crypto lending platform Celsius’ pause on all withdrawals, swaps, and transfers between accounts due to “extreme market conditions.” Shares of Silvergate dropped more than 17%, and other crypto-focused stocks such as MicroStrategy and Coinbase collapsed during premarket trading on Monday as Bitcoin price plunged below $24,000 per coin.

Three weeks ago, the crypto market saw another worse selloff, exacerbated by rising interest rates and TerraUSD losing its peg to $1 and eventually leading to the collapse of both the stablecoin and Terra (LUNA).

Volatility continues to be the norm in crypto coins, and the latest fall witnessed on Monday is another reminder of that. But what is being done by payment systems and digital projects will continue to stabilize the market long term.

Crypto Becomes Valid Portfolio Options and Assets Diversifier , Says Wells Fargo's Subsidiary

Wells Fargo Investment Institute, a registered investment adviser and wholly owned subsidiary of Wells Fargo, recently released its fifth publication in its digital asset and cryptocurrency educational series in August, as seen on Sunday, August 7.

The investment advisory firm published the report to ensure that new investors see the comprehensive picture of the digital assets industry and therefore take advantage of investing in the new asset class.

As per the new report, Wells Fargo considers digital assets as a transformative innovation, just like the internet, cars, and electricity.

The investment adviser described cryptocurrencies as the building blocks of a new large digital network that moves money and assets. That network is open for anyone in the world to use. Wells Fargo said infrastructure is emerging to support this new Internet of Value.

Since traditional finance is starting to embrace open networks, adopting digital assets is expected to accelerate over the coming years.

According to Wells Fargo, early adopters are set to gain profitability (economies of scale), while those late comers could lose something that the internet has taught the world for 40 years.

The adviser stated that while there is an investment thesis behind digital assets, the industry is still young to become mature, and therefore, many investment risks remain.

The main risks facing the industry are additional regulation, technology and business failures, limited consumer protections, price volatility, as well as operational risks associated with handling and storing digital assets, the bank elaborated.

Wells Fargo said cryptocurrencies have evolved into a viable investment asset. Long-term supply and demand trends further support industry growth and compress price volatility. Crypto has therefore emerged to play a role as portfolio diversifier. The bank classifies cryptocurrency or digital asset investment as an alternative investment.

Crypto Increasingly Gaining Mainstream Adoption

In 2020, several crucial events attracted increased mainstream usage in transactions and accelerated the maturation of crypto markets. For example, banks received regulatory permission to custody cryptocurrencies. Regulators took additional steps to extend a legal and oversight framework that have helped solidify crypto as investable assets.

In 2020 and 2021, more operating companies such as MicroStrategy, the Block Inc., (formerly Square), Tesla, among others, began allocating cash to digital assets and cryptocurrencies.

This year, crypto continues to gain ground as an investment despite the market crash. According to a recent Morning Consult data intelligence and market research firm survey, about 24% of American consumers own crypto.

Research shows that clients are increasingly asking investment advisors about crypto – with 94% of financial advisors receiving questions about the asset class from clients in 2021.

Cryptocurrency should be part of clients’ portfolios as long as they can afford to lose that money and they are going to keep it for a seriously long period of time, according to Suze Orman, a US personal finance expert.

Many experts advise clients that cryptocurrencies should be about 5% of their portfolio and not more.