BCB & The Need for Regulated Digital Asset Banking Services
BCB & The Need for Regulated Digital Asset Banking Services
This week we discuss the growing demand for regulated digital asset banking services and how companies, like London-based BCB Group, are leading the way in banking the underbanked through blockchain technology by bridging digital asset enterprises to the traditional financial system.
The Demand for Regulated, Digital Asset Services is Large & Growing
The digital asset economy has exploded in the past decade, from a hobby market to a multi-trillion dollar sector, comprising over 10% of the world’s unicorn companies today, as the world is quickly realizing digital assets are faster, more efficient, and more secure than typical legacy financial assets.
Blockchain technology also allows for the tokenization and securitization of non-fungible and previously illiquid assets. (In short, moving the world’s assets onto digital rails for the first time). Boston Consulting Group recently estimated the burgeoning market for the tokenization of global illiquid assets will exceed $16tn by 2030. We won’t go too deep into tokenization today, as that was the topic of our last blog (read more here), but as Blackrock CEO Larry Fink recently stated, the next generation for [global] markets is tokenization.
Similarly, the blockchain-based payments market is rapidly scaling, as reflected in the global stablecoin supply which reached more than $150bn last year and sits just under $140bn today. As compared to legacy payment methods like credit, debit, and ACH transactions (which exceeded $75tn in 2022), blockchain-based payments are fast, secure, digital, and transparent. And they don’t require large intermediary financial institutions, making them orders of magnitude cheaper than credit/debit transaction fees (which stand at ~1-3%) and international money transfers, which the World Bank estimates cost 6.2% on average.
According to Coin Metrics data, on-chain stablecoin settlements reached nearly $8tn in 2022 and it’s expected that, by year-end 2023, global stablecoin volumes will surpass the Visa network, at ~$12tn annually. Looking down the road, we believe stablecoin volumes will surpass the volume of all four major card networks (Visa, Mastercard, AmEx, and Discover) combined, given their salient benefits over legacy payment products.
But Current Solutions Offer only Piecewise Coverage
But, despite the meteoric growth of digital assets and blockchain-based payments, the current offering for digital asset banking services is markedly lacking, often leaving emerging digital asset markets notably underbanked. Traditional institutions either don’t offer services for digital assets or have piecewise offerings and/or sufficiently slow and cumbersome onboarding processes that significantly disadvantage enterprises.
Banking is, arguably, the most important early infrastructure for any new service or product that needs to touch fiat on-off payment ramps (i.e. cash into or out of dollars). And as the number of enterprises using digital monies and assets grows, so does the need for regulated banking solutions that bridge digital asset enterprises to the traditional financial system. As noted by Sam Harrison, formerly managing partner at Blockchain.com:
“Access to banking services and the disconnect between fiat banking and core crypto services has been a longstanding pain point for blockchain companies.”
This is why we were so excited to participate in BCB’s February Pre-Series B round, which valued the company at ~$200m. (Their prior funding round, in early 2022, marked the largest Series A round to date for a blockchain company in the UK).
BCB: Meeting the Demand for Regulated Digital Asset Banking Services
BCB Group (“BCB”) is one of Europe’s leading providers of business accounts and trading services for the digital asset economy. BCB is a vertically integrated, multi-regulated institution offering clients a complete end-to-end suite of payment processing, digital asset trading, and custody services accessible through a unified API-enabled platform.
Regulated by the UK’s Financial Conduct Authority and headquartered in London, BCB provides the essential infrastructure that enables over 250 crypto exchanges and web3 apps globally to accept and send over $120bn in bank transfers between tens of millions of customers.
An End-to-End, Compliant Answer for Blockchain Enterprises
BCB operates at the center of the critical banking infrastructure behind the digital asset economy, providing payments, trading, settlement, yield, and custody for both fiat and crypto. Where competitors like Fireblocks (valued at $8bn) or Anchorage ($3bn) operate in a single vertical (like payments/settlements or as a custodian/depository), or serve only one half of the crypto-fiat equation, BCB offers a true one-stop-shop for core banking services in both fiat and crypto.
And where competing digital asset banking solutions in Europe have predominantly set up shop in weaker regulatory regimes (like the Baltics or Malta), BCB aims to lead the market in Tier 1 jurisdictions across Europe and beyond. BCB is already regulated by the UK’s Financial Conduct Authority and has multiple regulatory license applications in process set to expand their services across the EU and around the world.
By bridging traditional banking to the digital economy in a seamless, compliant package, targeted at Tier 1 regulatory jurisdictions, BCB is positioned to shepherd mature enterprises into the space and catalyze the growth of the digital asset economy globally.
Already Delivering Results to the Underbanked
Since the February Pre-Series B round, which followed a record-setting Series A, the team has been hard at work delivering on their promise to bank the underbanked in blockchain, worldwide.
Despite canceling its planned acquisition of German Sutor Bank due to market conditions and regulatory delays, which would have allowed them to use their German BaFin regulatory approval across the EU+, the company is on track to offer instant USD settlements as promised before Q1 2024.
The long-anticipated addition of US dollar capabilities to the BCB Liquidity Interchange Network Consortium (“BLINC”), its multi-currency real-time payments network, will allow the company to act as a highway for dollars moving between the traditional banking system and blockchain. As Forbes puts it, this will likely create “the largest on-ramp and off-ramp in the world for people with USD bank accounts.”
And Well-Positioned to Lead into 2024
The addition of USD to the BCB payments network also follows on the heels of the closure of two crypto-facing competitor settlement networks in Silvergate’s SEN and Signature Bank’s Signet network, which were responsible for the majority of global USD flows in and out of Web3 until Q2 of this year.
Since then, BCB has already risen to fill the gap left by Silvergate & Signature and is positioning itself as the primary global regulated highway between dollars and the world of digital assets. And by operating as a money remitter, which is fully compliant with payment services regulations, rather than an exchange, BCB has sidestepped many of the regulatory potholes faced by earlier competitors from bodies like the US SEC. And as noted by former deputy CEO, Noah Sharp, earlier this year…
“A lot of [crypto] companies are already bank-grade, or are operating at the same level as a [company like] PayPal: in terms of how to KYC their customers; in terms of how they operate their fiat infrastructure; in terms of the strength of the compliance teams that control their standards … You can't make a blanket statement – not everyone’s there yet – but the industry, for the most part, is at an acceptable level.”
Looking ahead, BCB is at the heart of the digital asset economy and is set to be a primary global nexus between digital assets and dollars. As previously hostile regulatory regimes, like the US, begin to fill in long-standing regulatory gray areas, BCB’s addressable market and potential client list will only grow. And we begin to move towards a future in which traditional financial markets and digital asset markets coexist.
Author
Christopher Nelson
Head of Digital Asset Research