The European cryptocurrency market is opening up increasingly to traditional financial institutions. The number of banks registered among crypto service providers under the European MiCA regulation has roughly doubled since the end of June. Banks now account for nearly a quarter of the entities in the relevant register kept by the European regulator ESMA. Germany is driving a significant part of this growth.
Traditional banks are rapidly strengthening their position in the European cryptocurrency market. Whereas at the end of June they made up roughly one-sixth of the entities listed in the register under the Markets in Crypto-Assets (MiCA) regulation, by mid-September their share had already climbed to nearly 23 percent.
According to an analysis of data from the register kept by the European Securities and Markets Authority (ESMA), the number of banks on the list rose from around 40 to roughly 80 between June 26 and September 16.
Meanwhile, the total number of Crypto-Asset Service Providers (CASPs) increased from 243 to 349.
This does not mean that banks are pushing specialized companies out of the European crypto market. The number of non-bank providers also increased. However, the banking sector is growing at a substantially faster pace.
As a result, the share of non-bank providers fell from roughly 84 to 77 percent during the period under review, while banks increased their share from about 17 percent to nearly 23 percent. Practically speaking, almost every fourth provider listed in the European register is now a banking institution.
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German banks are getting into crypto
Germany is responsible for a significant part of this increase. Dozens of German commercial and cooperative banks have appeared in the ESMA register.
These are not just large financial groups. The new entities also include a number of regional institutions from the Volksbank, Raiffeisenbank, and VR Bank networks. Regulated cryptocurrency-related services are thus gradually spreading in Germany beyond the largest international banks.
One of the most notable new names is Deutsche Bank, Germany’s largest bank. On September 16, it announced it was preparing a digital asset custody service aimed at institutional and corporate clients in Europe. It hopes to onboard its first customers this year, provided the relevant regulatory process is completed in time.
The new service is intended to allow for the safe and regulated custody of selected digital assets. Deutsche Bank sees it as another step in integrating digital assets into the traditional financial infrastructure. At the same time, the bank stresses that, in its view, cryptocurrencies and other digital assets are not meant to replace the traditional financial system, but to complement it.
According to information from Cointelegraph, a Deutsche Bank spokesperson said the bank expects to obtain the necessary regulatory approval under MiCA during October.
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Under MiCA, banks follow a different path than crypto companies
The rapid rise in the number of banks is also linked to how the European MiCA regulation is structured. Banking institutions do not go through exactly the same process as regular cryptocurrency companies when entering the crypto services market.
Companies that want to provide crypto-asset-related services in the European Union and lack any other appropriate financial authorization must generally apply for authorization as a crypto service provider under Article 62 of MiCA. The application must include, among other things, information about the company, its planned services, and how it intends to offer them to clients.
For already-regulated financial institutions, however, MiCA envisages a different regime. Article 59 of MiCA explicitly permits crypto services to be provided by, for example, credit institutions, provided they meet the conditions set out in Article 60.
Under Article 60, a bank may offer crypto-asset-related services through a special notification procedure. It must submit the required information to the competent regulator in its home country at least 40 working days before it begins offering the relevant services for the first time.
Banks therefore do not have to go through the same standard CASP authorization process as companies entering the European crypto market without an existing banking or other relevant financial license.
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MiCA is transforming the European crypto market
The growing share of banks also illustrates one of the broader effects of the European MiCA regulation. It does not only affect cryptocurrency exchanges or companies that arose directly within the digital asset sector. It is also creating a more unified framework within which traditional financial institutions can develop crypto services.
Under Article 109 of the MiCA regulation, ESMA maintains a public register of crypto-asset service providers, which it regularly updates based on information from national supervisory authorities.
As of September 16, when ESMA published the latest version of the register, it contained a total of 349 crypto service providers. Roughly 80 of them were banking institutions. Back on June 26, however, there were only around 40 banks out of a total of 243 providers.
Non-bank companies still represent the majority of the regulated European crypto market. However, the pace at which banks have been joining it in recent months points to a gradual convergence of traditional finance and the digital asset sector.
Germany also suggests that this trend need not remain limited to the largest financial houses like Deutsche Bank. If regional and cooperative banks continue to be added to the European register, cryptocurrency-related services could gradually become part of the offering of institutions that most of their clients have so far associated primarily with regular accounts, loans, or traditional investments.
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