The quarter billion dollar bet on a crypto revival

Just as cryptocurrency investors are rushing for the exit, many banks are quietly positioning themselves for a new dawn in digital assets trading.

Banks need crypto-savvy intermediaries to handle the heavy lifting.  The $250 million acquisition of Swiss digital assets platform Metaco by United States crypto firm Ripple highlights this point.

Metaco has already signed up a series of big banks, including Citibank and BNP Paribas, that want to tap into the anticipated growth of the digital assets market.

Banks know traditional financial markets. They are not so sure-footed in the world of stablecoins, NFTs and tokenized assets that live on blockchains.

Ripple has been around for a decade and is well-known for its XRP cryptocurrency and distributed ledger technology (DLT) platform that speeds up money transfers worldwide.

The company also seems to have a bad reputation with US regulators, who take a dim view of XRP that looks to them a lot like a security.

Ripple is facing a $200 million legal bill from this battle, so it probably needs to diversify its business into less contentious areas.

Helping banks store cryptocurrencies for clients and create blockchain-compliant versions of traditional financial instruments might just fit this strategy.

But this large payout for the Lausanne-based Metaco is taking place when the cryptocurrency market is reeling from the collapse of the FTX exchange and other scandals.

The price of bitcoin and other cryptocurrencies took a nosedive last year and few people seem willing to trade the stuff at the moment.

So why are some banks, and Ripple, so optimistic about the future in this nascent sector?

In the eyes of regulators, not all digital assets are born equal, just as various cryptocurrencies have different functions and purposes.

The traditional financial system is slowly coming round to the idea that DLT might smooth out some of the kinks in the current infrastructure.

While the US is busy aggressively pursuing Ripple and other crypto projects, some countries are setting up rules and regulations to encourage the technological innovation.

Switzerland was one of the first to adapt regulations for digital assets and the European Union has recently passed similar laws.

Ripple has placed a $250 million bet that once the current controversies are over, it will be in position to cash in when the digital assets dam breaks.