Bessie Liu

<div id="highlights-block_62a37f14d12b9" class="highlights">
 <ul>
 <li>A survey showed 45% of people would consider buying NFTs with more flexibility</li>
 <li>The move comes soon after Mastercard’s decision to partner with crypto exchange Coinbase earlier this year</li>
 </ul>
 
</div>



NFT-hungry traders now have another way to snap up digital collectibles: a partnership between Mastercard and a slew of crypto-native companies.



Payment processing giant Mastercard <a href="https://www.mastercard.com/news/perspectives/2022/simple-nft-purchasing-on-nft-marketplaces/" target="_blank" rel="noreferrer noopener">announced</a> that it will be teaming up with Immutable X, Candy Digital, The Sandbox, Mintable, Spring, Nifty Gateway and Web3 infrastructure provider MoonPay to allow customers to purchase the digital assets without owning crypto outright.



The multinational corporation found more than 45% of people it <a href="https://www.mastercard.com/news/perspectives/2022/digital-payment-landscape-2022/" target="_blank" rel="noreferrer noopener">surveyed</a> had purchased an NFT (non-fungible token) or would consider doing so with more flexibility.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">$2 billion+ was spent on NFTs during the first quarter of 2021 — representing a YoY increase of 2,100% from Q4 2020. Clearly, the opportunity for creators to unlock digital engagement through NFTs is huge. Time for the traditional cards to find ways to remain relevant. ⏲️&mdash; Nicole Casperson (@nicolecasperson) <a href="https://twitter.com/nicolecasperson/status/1535267589810753537?ref_src=twsrc%5Etfw">June 10, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The move follows Mastercard&#8217;s decision to <a href="https://blog.coinbase.com/coinbase-and-mastercard-partner-to-revolutionize-nft-purchase-experience-8e486a392c55" target="_blank" rel="noreferrer noopener">partner with crypto exchange Coinbase</a> earlier this year, where users are able to directly purchase NFTs with their Mastercard.



“With the help of these companies, Mastercard’s expanding adoption of Web3 — a new version of the internet based on blockchain — adds to our existing work bringing our payment network to Coinbase’s new NFT marketplace, which opened to all Coinbase users in May,” the company said in <a href="https://www.mastercard.com/news/perspectives/2022/simple-nft-purchasing-on-nft-marketplaces/" target="_blank" rel="noreferrer noopener">a statement.</a> 



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Overall, these integrations are designed to make crypto more accessible and help the NFT ecosystem keep growing, innovating and bringing in more fans.”</blockquote>



Mainstream payment processors have taken a keen interest in crypto and NFTs, with Visa <a href="https://usa.visa.com/partner-with-us/info-for-partners/visa-creator-program.html" target="_blank" rel="noreferrer noopener">announcing </a>a one-year immersion program for creators interested in growing their businesses through NFTs in March this year.&nbsp;



Security remains one of the biggest barriers preventing people from engaging with crypto projects, and Mastercard said it is also working on ways to reinforce its cybersecurity tools “to boost safety and protect user data for purchases people make using a Mastercard card.”



The survey found 59% of consumers would feel more confident about crypto if they knew a “reputable” organization was involved — and 63% said the government should step in to regulate digital assets and, more specifically, stablecoins.



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Coinbase

You Can Now Buy NFTs Without Crypto

Merkle Science

Financial service companies may have to dedicate extra time and resources to dealing with crypto clients, something they may not want to do in the face of risks they have difficulty assessing.


<div id="highlights-block_61ddc7f9edcd5" class="highlights">
 <ul>
 <li>Because of the negative perception of crypto in general, startups in the industry can have difficulty acquiring the basic necessities for conducting business.</li>
 <li>Best practices in ALM and KYC need to involve constant monitoring of user transactions.</li>
 </ul>
 
</div>



It’s no secret that crypto still has a bad rap. About eight years ago, Silk Road set the stage for what would become the industry’s most infamous tagline: “only criminals use crypto.”



Even though it’s been verified that <a href="https://www.cryptoiqtrading.com/a-mere-0-08-of-crypto-transactions-are-associated-with-illegal-activity-and-fiat-currency-is-used-for-crime-1000-2500-times-more-than-crypto/">illicit</a> activity only accounts for a fraction of a percent of all crypto transactions, the damage has been done. Cryptocurrency’s reputation remains tainted to this day.



This has had aftereffects not just for the average, everyday crypto advocate, but for blockchain and crypto startups around the world.



For more on the subject, we spoke with members of the team at Merkle Science, a next-generation blockchain analytics company. They help organizations in the traditional financial sector, in crypto, and in government to transact safely in cryptocurrency.



Here’s some of their input on how and why crypto startups sometimes struggle to get the financial access they need.



<h3 class="wp-block-heading">Difficulty acquiring the right services</h3>



Because of this negative perception, startups in the crypto industry can have difficulty acquiring the basic necessities for conducting business. Many individuals and organizations whose business is to provide insurance, access to bank accounts, and accounting services have a strong hesitancy to serve crypto startups, according to Mriganka Pattnaik, Co-founder and CEO at Merkle Science.&nbsp;



&#8220;Traditional financial services have a couple of concerns,&#8221; Pattnaik said. &#8220;First, whenever there&#8217;s any type of regulatory uncertainty, traditional financial companies are really cautious, because many of them are beholden to multiple regulators, and they want to make sure that they are absolutely clear on what the rules are so that they can comply with all of them.&#8221;



Pattnaik went on to describe how the most common AML and KYC practices in both traditional finance and crypto, which perform the service just one time, may not always suffice. Customers can change their behaviors over time, so best practices need to involve constant monitoring of user transactions.



For this reason, Merkle Science&#8217;s automated solution for detecting anomalies in customer behavior has what he calls a &#8220;behavioral rule engine.&#8221; This allows companies to monitor transactions through a series of questions and rules that companies can put in place to monitor customer activity. These rules can be customized, based on guidance from FinCEN or other global regulators. The rules, or activity markers, will look for the types of activity that might be associated with illicit conduct.



Merkle Science analyzes a series of factors to assign risk scores to crypto currency businesses. Merkle Science’s platform allows users to deploy this automated tool to assess the risks in dealing with their potential business partners



The bottom line is that financial service companies may have to dedicate extra time and resources to dealing with crypto clients, something they may not want to do in the face of risks they have difficulty assessing, according to Pattnaik.



<h3 class="wp-block-heading">Seemingly “unquantifiable” risk</h3>



Another factor that can deter traditional financial services brokers from working with crypto startups is understanding how to assess the businesses’ riskiness. For those who aren’t familiar with the blockchain industry, the breakneck speed at which the industry evolves makes risk assessment very daunting and perhaps even feel impossible.



Traditional finance actors —&nbsp;whether it’s banks, accountants, or insurers —&nbsp;have little experience distinguishing between good and bad actors within the industry or how to differentiate between different types of blockchain businesses. Regardless of whether it’s a crypto exchange or a custodian or highly-regulated stablecoin, blockchain businesses are seen as “highly risky” when in reality they carry varying levels of risk.



In response to the question of how those in the financial services industry might break down the anatomy of crypto risk, Pattnaik said, “we can start by focusing on whether or not a business is in compliance or is in the process of becoming compliant. Jurisdictions around the world are forming digital asset regulations and setting up licensing regimes. Businesses that are going through — or have gone through —&nbsp;the stringent application process of a regulator such as the Monetary Authority of Singapore should absolutely be viewed as less risky compared to one that has not.”



On-chain data is another key factor in crypto business risk assessment — such as&nbsp;whether the business’ crypto wallets are associated to previous illicit activity. And if so, are these risks direct or indirect? How closely is the business linked to the illicit activity?



Off-chain factors — such as previous law enforcement actions, security protocols, or introduction of new technologies —&nbsp;all contribute to a company’s riskiness. While some of aspects of risk assessment may be new, it is not impossible for traditional financial services companies to dissect and evaluate.&nbsp;



<h3 class="wp-block-heading">Perception vs. reality</h3>



Pattnaik also noted that many within traditional finance adhere to the belief that cryptocurrency is used for criminal activity or, more recently, believed to be used for sanctions evasions. But anyone investigating financial crimes would likely prefer that the suspects had used cryptocurrency.



“Unlike the US dollar, cryptocurrency is traceable, and so if crimes are committed with cryptocurrency, law enforcement has tools to be able to figure out where the cryptocurrency is, where it&#8217;s moved, what wallets it&#8217;s touched,” said Pattnaik adding that as a result, crimes can be investigated more easily. As for sanctions evasions, “tools such as mixers and tumblers or privacy coins just do not have sufficient liquidity for individuals to move hundreds of millions of dollars in untraceable ways.”



Today, cash is still the preferred monetary medium for smart criminals, according to Pattnaik. Despite this, the regulatory uncertainties and extra monitoring for compliance create too great a barrier for some service providers to consider working with crypto clients.



Perhaps one day, when more providers adopt solutions like those offered by Merkle Science, crypto startups will have easier access to the tools they need.



<hr class="wp-block-separator"/>



This content is sponsored by <a href="https://www.merklescience.com/">Merkle Science</a>.



The content of this webpage is not investment advice and does not constitute any offer or solicitation to offer or recommendation of any company, product or idea. It is for advertising purposes only and does not take into account individual needs, investment objectives or specific financial circumstances.

cryptocurrency

Risky Business: How the Crypto Industry is Being Stunted by Lack of Financial Services

Sebastian Sinclair

<div id="highlights-block_6201b5e5dc738" class="highlights">
 <ul>
 <li>The banking giant, which handles around $1.9 trillion in assets, said crypto should be approached through professionally managed private placements</li>
 <li>Wells Fargo said it did not recommend crypto mutual funds, ETFs, grantor trusts and &#8220;individual cryptocurrency speculation&#8221;</li>
 </ul>
 
</div>



Multinational financial services and banking giant Wells Fargo told investors Monday it did not think it was too early to get skin in the game for cryptocurrency investments.



In a <a href="https://saf.wellsfargoadvisors.com/emx/dctm/Research/wfii/wfii_reports/Investment_Strategy/cryptocurrency020722.pdf" target="_blank" rel="noreferrer noopener">report</a> from the bank&#8217;s Global Investment Strategy Team, Wells Fargo said crypto users are growing rapidly around the world. Crypto appears to be near a &#8220;hyper-adoption phase,&#8221; similar to that of the internet during the mid-to-late 1990s.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">&#8220;We believe that cryptocurrencies are viable investments today, even though they remain in the early stages of their investment evolution,&#8221; the company said.</blockquote>



The bank is making a recommendation to investors to approach crypto investments through professionally managed private placements, telling them to be &#8220;patient&#8221; while the industry continues to mature.



&#8220;We do not recommend any of the other current investment options, such as mutual funds, ETFs, grantor trusts and individual cryptocurrency speculation,&#8221; Wells Fargo said. The company added it was &#8220;hopeful&#8221; 2022 would bring about greater clarity on the regulatory front which could lead to &#8220;higher quality&#8221; investments.



Wells Fargo also said it did not subscribe to the “too late to invest” argument new investors feel when they first start poking around digital assets. That&#8217;s because performance numbers for most crypto are skewed as they&#8217;ve grown from &#8220;virtually zero,&#8221; according to the report.



The bank also points to crypto being a nascent industry and &#8220;relatively young investment space&#8221; with a large majority of projects being fewer than five years old.



<h3 class="wp-block-heading">Taking a page from the internet</h3>



Wells Fargo believes crypto is “early, but not too early,” in the investment stage, highlighting the need for investor education while also pointing to crypto&#8217;s adoption rates similar to that of the internet during the turn of the century.



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="562" height="337" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/02/2022-02-08-wells-fargo-research.jpg" alt="" class="wp-image-16969" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/02/2022-02-08-wells-fargo-research.jpg?w=562 562w, https://blockworks-co.imgix.net/wp-content/uploads/2022/02/2022-02-08-wells-fargo-research.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/02/2022-02-08-wells-fargo-research.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2022/02/2022-02-08-wells-fargo-research.jpg?w=435 435w, https://blockworks-co.imgix.net/wp-content/uploads/2022/02/2022-02-08-wells-fargo-research.jpg?w=365 365w, https://blockworks-co.imgix.net/wp-content/uploads/2022/02/2022-02-08-wells-fargo-research.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/02/2022-02-08-wells-fargo-research.jpg?w=50 50w" sizes="auto, (max-width: 562px) 100vw, 562px" /><figcaption>Internet usage history versus crypto users; Sources: International Telecommunication Union, Our World in Data, Crypto.com, Statista, Bloomberg and Wells Fargo Investment Institute</figcaption></figure></div>



The research draws parallels to the internet&#8217;s performance in the late &#8217;90s and its technology S curve when the web&#8217;s use surged from 77 million in 1996 to 412 million in 2000. The bank believes crypto may have reached an adoption inflection point that bears resemblance to where the internet was back then.



The chart above, as published in the report, compares the global adoption rate of the internet beginning in 1993 and crypto users beginning in 2014.



&#8220;Based on this comparison alone, it appears that cryptocurrency use today may even be a little ahead of the mid-to-late 1990s internet,&#8221; the bank said.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">&#8220;Precise numbers aside, there is no doubt that global cryptocurrency adoption is rising, and could soon hit a hyper-inflection point.&#8221;</blockquote>



Wells Fargo is no stranger to the crypto industry. Its report adds to musings penned last year when it called crypto a &#8220;<a href="https://cms.blockworks.co/wells-fargo-unveils-crypto-strategy-after-all/" target="_blank" rel="noreferrer noopener">viable investment asset</a>&#8221; and said it would begin offering a &#8220;professionally managed solution” to its wealthiest clients. The banking giant followed up by registering a <a href="https://cms.blockworks.co/wells-fargo-jpmorgan-set-to-launch-passive-bitcoin-trusts/" target="_blank" rel="noreferrer noopener">passive bitcoin trust</a> with the US Securities and Exchange Commission in August.



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Financial Services

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