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Interview with two of the authors of ADL’s report, Banking on Cryptocurrencies – Riding the wave of uncertainty

Dominik Nittner is a Principal based in Arthur D. Little’s (ADL) Frankfurt office and responsible for developing the Financial Service Practice in Central Europe. His areas of specialization are in growth and innovation strategies, including strategy execution, (digital) business transformations and venture building for banks.


Georg von Pfoestl is head of Financial Services (FS) Austria at Arthur D. Little (ADL), based in Vienna. In his current role, he focuses on developing the financial services practice for Austria, Germany and Eastern Europe, alongside the FS partners in the regions. Georg is a topic expert in cryptocurrencies, ESG and sustainable finance, business strategy and growth programs, and risk management.


Pushpendra Mehta, Executive Writer,, interviewed Dominik Nittner, Principal, Financial Services Central Europe, ADL, and Georg von Pfoestl, Principal, Financial Services Austria, ADL, two of the authors of ADL’s report Banking on Cryptocurrencies.

The interview has been lightly edited for clarity and length.

Dominik and Georg, as you know, cryptocurrency is facing a crisis of confidence after popular crypto exchange FTX filed for bankruptcy. As authors of Arthur D. Little (ADL)’s latest report Banking on Cryptocurrencies, how do you assess the crisis? Will it spark a broader contagion in crypto markets and also extend to financial markets?

The latest developments in the crypto market, including the bankruptcy of FTX, definitely lead to a loss of trust and increased uncertainty. We expect – and we see it already – that further crypto players will get into severe trouble and that some of them will even fail. Damage to further crypto players will happen.

But as of now we do not expect a significant spill over into the financial markets. This view is shared by several regulatory and supervisory authorities such as the Germany’s Federal Financial Supervisory Authority (BaFin).

Overall, it is clear that significant changes to the rules of the crypto game are required to ensure that cryptocurrencies secure a long-term right to exist – which means greater regulation.

Do you think the FTX meltdown will sound the death knell for the cryptocurrency industry, or is crypto here to stay? If crypto survives, does it imply increased, stringent, and uniform regulatory scrutiny and eventual disappearance of a majority of cryptocurrencies from the market?

The FTX meltdown will not be the death knell for crypto if we are able to change the rules of the game.

Change is vital and has been recognized by institutions such as the Financial Stability Board (FSB), the Basel Committee on Banking Supervision (BCBS), the Committee on Payments and Market Infrastructures (CPMI), the Financial Action Task Force (FATF), and Germany’s Federal Financial Supervisory Authority (BaFin). All of these bodies are working on tighter regulations.

These discussions tend to focus currently on limiting exposure of banks to unbacked cryptocurrencies and setting specific capital requirements for different types of crypto assets. They also cover areas such as the taxation of crypto assets, strengthening public disclosure and reporting, transparency levels and standards of conduct, as well as anti-money laundering (AML) solutions and combatting the financing of terrorism (CFT).

US Federal Reserve Vice Chair Lael Brainard is someone who has voiced concerns when she said: “It is important that the foundations for sound regulation of the crypto financial system be established now before the crypto ecosystem becomes so large or interconnected that it might pose risks to the stability of the broader financial system.”

From the current - 19,000 cryptocurrencies (compared to just 180 fiat currencies) we are likely to see the majority disappear from the market, leaving perhaps just 30 to 50 (or even less) “winners” still standing, regarded as trustworthy, reputable, and reliable by investors.

Following the bankruptcy of FTX, a number of British banks have reportedly banned crypto-related transactions completely. What impact will the FTX collapse have on financial institutions? How do you think banks will adapt and position themselves in the uncertain and volatile crypto industry?

Taking a step back, many banks have been quite risk-averse and cautious when it came to entering the crypto market. In fact, many were pushed into crypto through market pressure and demand from retail and institutional investors. With the failure of FTX and the high recent volatility of cryptocurrency prices risk has definitely risen in the minds of banks.

The crypto markets are expected to become more regulated, and this is likely to have a profound impact on the risk and return profile of crypto generally. But it is difficult to say what those changes will be, not only because of fast-changing market conditions, but also because of how the regulatory framework might evolve. And the implications for the whole industry, not just individual coins, can be enormous.

For their part, banks welcome clear regulations to enable them to move forward with confidence, rather than overstepping the mark or holding back for fear of making a mistake.

Do you think banks that see a silver lining in the FTX failure will capitalize on its fall, knowing that investors are likely to want to work with more heavily regulated players like banks? If so, do you think such banks will create their own coin or choose instead to plug into another’s expertise?

There is no doubt that regulation is coming down the line. As SEC Chair Gary Gensler has pointed out, “Few technologies in history, since antiquity, can persist for long periods of time outside of public policy frameworks.”

It is likely that investors want to work with more heavily regulated players such as banks going forward. And some banks are working on creating their own coin. JPMorgan Chase & Co, for instance, has set up the world’s first bank-led blockchain platform, Onyx, complete with its own JPM coin and blockchain-based interbank payment network.

However, since many established financial institutions are notoriously overburdened with high levels of legacy tech, rather than adding to the layers with new crypto apps and hardware, they may choose instead to plug into another’s expertise. So, even as the sector is hit by a run of bankruptcies, Barclays has taken a stake in Copper, a prominent cryptocurrency firm providing custody, prime broking, and settlement services to institutional investors.

What will the next-generation crypto bank look like?

The next-generation crypto bank will not only have a strong technology core to underpin what it does, but it will also be highly customer-centric, as well as having the capacity to continually adapt to a changing marketplace.

Due to the current volatility of most cryptocurrencies and the unclear legal situation surrounding them, crypto is potentially a high risk area for banks that could certainly pose a risk to the stability of a financial institution. This means that banks must think carefully about where in this area they are going to play.

According to your report (Banking on Cryptocurrencies), “At the moment, cryptocurrencies are generally considered an investment rather than a vehicle for payments.” Do you think this is likely to change in the near future, leading to crypto being primarily used for different types of payments? When it comes to cross-border payments, in your opinion, will banks bet on central bank digital currency (CBDC) over crypto?

Indeed, currently, cryptocurrencies are generally considered an investment rather than a vehicle for payments. However, there is a widespread belief that cryptocurrencies offer great potential as a means to improve financial inclusion in countries that don’t have cheap and easy-to-use banking systems. The World Economic Forum, for instance, advocates the use of blockchain technology and cryptocurrencies to help create more open and democratic financial systems.

Cross-border payments to other countries have traditionally been expensive, operationally complex, and may take up to several days to be credited. These international payments could be made simpler and cheaper by embracing crypto and blockchain solutions. So, rather than having to wait days for payments to transfer, as happens for instance between EU and non-EU countries, by using Ripple’s XRP Ledger, banks could not only achieve operational advantages but also be able to offer customers low-cost, real-time transfers.

Many central banks are now exploring the idea of issuing a digital currency that they will regulate. If central banks are successful with their plans, we can expect that banks will bet on such Central Bank Digital Currencies (CBDCs) when it comes to payments. Current cryptocurrencies do not meet the criteria required to become a means of payment.

Your report states that “As an industry, crypto mining is now consuming more energy than entire countries.” This raises significant environmental and ethical concerns that may be at odds with an organization’s ESG position and warrant asking an important question: Can we actually afford cryptocurrencies? Please share your thoughts with our audience.

Indeed, as an industry, crypto mining is now consuming more energy than entire countries. The annual energy consumption used to mine Bitcoin, for example, is the same as the total electricity consumed by the Netherlands in a year — the energy consumption of Bitcoin is 110 Terawatt Hours (TWh) and that of the Netherlands 108 TWh, according to research by the University of Cambridge. Globally, crypto-asset activity consumes more electricity than Argentina every year.

As stated in our report, emissions data from just three of the largest Bitcoin mining companies — Bit Digital, Greenidge, and Stronghold — indicate that their operations create 1.6 million tons of carbon dioxide (CO2) annually, an amount produced by nearly 360,000 cars.

The crypto industry recognizes it has an ESG problem and that it must do more to address this issue. This high energy consumption of the current proof of work (PoW) is not sustainable – we can simply not afford it. Hence, new solutions are required. For instance, the Proof of Stake (PoS) mining. If PoS were adopted wholesale, it could reduce the collective carbon footprint of Bitcoin alone by more than 99%. Showing the direction of travel, Ethereum recently completed its long-planned move to PoS with Ethereum 2.0.

Dominik Nittner and Georg von Pfoestl, thank you for your time and valuable insights.  

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