Cryptocurrency gets CBA’s tick of approval - November 3, 2021

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Commonwealth Bank usually likes to associate its brand with values of stability and trust but it has taken a leap into the speculative end of finance by becoming the first of the major banks to offer ordinary customers the chance to trade in the class of investments known as “cryptocurrency”.

CBA chief executive Matt Comyn announced on Wednesday the bank would allow customers to trade on the CBA app in 10 cryptocurrencies including bitcoin and ethereum.

Acknowledging the controversy around cryptocurrency, Mr Comyn said it was a risky asset and there was a chance that regulators might decide to shut the whole cryptocurrency industry down. However, he said that was “probably unlikely”.

“We believe we can play an important role in crypto to address what’s clearly a growing customer need and provide capability, security and confidence in a crypto trading platform,” he said.

Allowing investors to trade crypto on its app is a clever play by CBA to lock in a long-term relationship with younger, tech-savvy customers to whom it can then sell mortgages and credit cards. It is also one of the clearest signs yet in Australia that cryptocurrency is being legitimised as an asset class.

Most people by now are vaguely aware that cryptocurrencies are digital, paperless money whose ownership is recorded on private global networks of computers, which verify deals using complicated mathematical puzzles.

Fans of “crypto” say it is a democratic technology which will shake the foundations of boring old global capitalism and they will regard CBA’s decision as a vote of confidence.

These investors have turned crypto into a market worth an estimated $2 trillion. The price of some cryptocurrencies has grown 1000-fold, creating crypto billionaires. CBA says 8 per cent of Australians own crypto assets.

But most regulators warn that the market looks a lot like a speculative bubble.

The RBA said in September at a parliamentary inquiry into “Australia as a technology and financial centre” that it is “sceptical” about the value of crypto and Andrew Bailey, the governor of the Bank of England, this year described it as “dangerous”.

Tax authorities and agencies that fight financial crime are worried crypto’s main function is to launder money and avoid tax. Mr Comyn argues that CBA has developed a low risk offering and engaged with regulators on its crypto trading plans.

The point for investors is that, because they have no intrinsic value, the price of cryptocurrencies are extremely volatile. The market for bitcoin crashed in May because China outlawed it and US tech billionaire Elon Musk announced he would reverse a decision to accept bitcoin as payment for his Tesla cars.

A number of countries are now looking at creating their own official digital currencies which could flood the market with a more trustworthy product and drive private crypto out of business.

CBA, better known for its mortgages and savings accounts, should be careful that it is not giving investors a false sense of security by offering cryptocurrency on its branded platform.

Some people will want to invest in crypto out of curiosity or because they regard it as a hedge against a fall in the value of traditional markets such as shares and real estate. Gold has no intrinsic value either but it has been used in this way for millennia.

We may well be in the middle of a crypto bubble akin to the dot-com boom of 2000. But even though that bubble did burst, exposing many spivs along the way, two decades later tech is a massive, well established industry. Cryptocurrency may follow a similar trajectory. There is no question the underlying technology could be useful in protecting against counterfeit housing and share settlements.

But CBA customers should exercise a degree of caution when considering whether to invest their hard-earned savings in what today is still an extremely speculative asset.

(The Sydney Morning Herald)