Update – 16 April 2020
We have noted an increasing level of interest in cryptocurrencies from a number of our customers. Over the coming period, we will therefore review our approach to cryptocurrencies, and we will communicate any changes in our position.
Original article and Q&A published on 23 March 2018
We have a negative position towards cryptocurrencies and strongly recommend that our customers refrain from investing in the field.
Over the past years, cryptocurrencies such as Bitcoin, Ethereum and Monero have gained widespread attention among consumers and investors in many countries.
The debate about these digital currencies has given rise to questions from both customers and investors. With this article, Danske Bank would like to express our view on cryptocurrencies.
Avoid investing in cryptocurrencies
Overall, we are negative towards cryptocurrencies and we strongly recommend that our customers avoid investing in cryptocurrencies.
First of all, cryptocurrencies differ from traditional currencies in the sense that they are not backed by a central bank. They lack the investor and consumer protection typically connected with traditional currencies and investments.
Secondly, cryptocurrencies have turned out to be highly volatile, and the price formation is non-transparent. As an investor, you have very limited insight to how the market is developing and what is driving the price.
Thirdly, and most importantly, the lack of transparency and regulatory control have made cryptocurrencies a target for criminal purposes and we know that they on several occasions have been involved in criminal transactions like money laundering or extortion.
As a financial institution, we have an obligation to assist in the fight against financial crime and money laundering. At the current stage, cryptocurrencies do not offer the sufficient level of transparency in order for us to live up to our obligations within anti money laundering regulation.
For these reasons, it is not possible to trade cryptocurrencies on our trading platforms. However, we monitor the market closely, and if the cryptocurrency market becomes more transparent and mature, we might reconsider this position.
Crypto-related instruments phased out
Due to the above mentioned reasons, we do not in any way want to support the investment environment surrounding cryptocurrencies. That is why, we have decided to also phase out the possibility to buy financial instruments directly related to the price of cryptocurrencies. For instance, that could be derivatives or ETNs (Exchange Traded Notes) that mirror the price of a cryptocurrency. These types of securities are characterised by high volatility and risk.
Credit card transactions and deposits related to cryptocurrencies
If you as a customer wish to deposit funds originating from cryptocurrency investments, we will treat it in the same way as deposit funds stemming from other types of investments. Accordingly, we may accept the deposit, if it complies with current regulation and anti-money laundering procedures.
Furthermore, we do not block the usage of a Danske Bank issued credit card in connection with trading cryptocurrencies. However, as with all credit card transactions, customers should comply with current anti-money laundering procedures and regulation.
If you have any questions, please contact Danske Bank, Investment Support, at +45 70 20 22 96
Update – 16 April 2020
What are cryptocurrencies?
Cryptocurrencies are digital currencies that can be used as a means of payment. They are based upon blockchain technology, characterised by a high degree of security and trust.
Cryptocurrencies are typically anonymous and do not hold any deposit guarantee or investor protection. They are not backed by the central banks and are, therefore, disconnected from the “real” economy.
How many cryptocurrencies exist today?
There are more than 1.300 different cryptocurrencies in circulation today, besides a number of affiliated investment products.
Why does Danske Bank advise against cryptocurrencies?
Danske Bank advises against cryptocurrencies for a number of reasons.
In contrast to traditional currencies, cryptocurrencies are not backed by central banks, they are outside regulatory control, and they lack basic consumer and investor protection. The safety net around crypto currencies is therefore very limited.
Risk of financial loss associated with the cryptocurrency market is also very high, as the currency continues to be immature at this point. This has amongst other things resulted in extremely volatile price developments.
On top of this, cryptocurrencies have proven to be widely used for illegal transactions due to the fact that they are difficult to trace, following their anonymity.
Is your resistance against cryptocurrencies mainly linked to the fact that they could be a threat to your business in the long term
The world is moving extremely fast these days and we are always considering new technological opportunities, including cryptocurrencies and blockchain. However, to this point, we believe that cryptocurrency is still a very immature technology with a low level of investor protection and associated with very high risks.
Are cryptocurrencies connected to criminal activities?
The profound lack of transparency, maturity and regulatory control has made cryptocurrencies a target for criminal purposes. For instance, it is a known fact that they have been involved in criminal transactions like money laundering or extortion.
As a financial institution, we play a key role in fighting financial crime. This is why we will always be wary around any kind of payment means or distribution channel that are connected with money laundering opportunities.
What is blockchain?
Blockchain is a way to store records of transactions in a block, without the possibility of modification. When new info is stored, new blocks are added as chains to the previous block, hence the name.
Blockchain is typically managed as a peer-to-peer network. Within the network, data cannot modified without being visible to everybody else in this network. Also, the network usually mutually must validate new blocks.
Blockchain is therefore a very secure technology which has proven to be very hard to compromise by IT criminals.
Blockchain is known for creating a system that is transparent due to the distributed ledger set-up. How come this transparency does not apply to cryptocurrencies?
It is correct that transactions between different cryptocurrency wallets are transparent and traceable, given its blockchain set-up. However, the owners of each wallet cannot necessarily be identified. This leads to a lack of transparency and the potential misuse of cryptocurrencies for criminal purposes.
What is Danske Bank’s position on blockchain?
Danske Bank is overall positive towards blockchain. The technology is interesting for our industry, and we see high potential for using blockchain for improving the customer experience, for instance within trade finance.
This is also why we have increased our investments in this technology over the past few years, among other things through our R3 co-ownership. The purpose of R3 is to develop and mature the blockchain technology to prepare it for commercial usage.
Can I use my Danske Bank credit card to purchase cryptocurrency from other parties such as a bitcoin exchange?
We do not impose a general block on credit transfers or card transactions involved in buying or selling cryptocurrencies. However, our customers must at all times comply with regulation and our anti-money laundering procedures.
Why would Danske Bank prevent customers from investing in cryptocurrencies when they are not illegal in the Nordic financial markets?
While cryptocurrency investment is not illegal, European regulators have warned against investment in such currencies because of the substantial risks involved. We share this concern, since the cryptocurrency market lacks the transparency, safety and maturity necessary to make us feel comfortable around the currencies. This is also why we do not offer cryptocurrencies to be traded on our investment platforms.
The stock market can be volatile, too. Why not provide Danske Bank customers with the opportunity of trading cryptocurrencies?
We discourage investing in cryptocurrencies due to the great risk and lack of safety connected with cryptocurrencies.
Contrary to the cryptocurrency market, the stock market is regulated, so that investors are protected by certain rules. The lack of investor protection is one major reason why we consider the cryptocurrency market to be immature at present.