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Traditional Banks Continue Raking in Profits Despite Down-Market and DeFi Popularity




Over the past few years, digital assets have thrived.  Yes, the market is in the midst of its latest bearish cycle, but a broader perspective shows scores of promising developments.  Bitcoin in particular has officially,

  • lured in institutional investors and service providers
  • shown promise as a store of value / hedge asset (adopted in many treasury reserves)
  • shown signs of functioning as a currency (Lightning Network growth and adoption)
  • been adopted by nations (El Salvador, Central African Republic)

Beyond Bitcoin, we have also seen the rise of entirely new subsets within the sector.  Namely,

  • Decentralized Finance (DeFi)
  • Digital Securities
  • Non-Fungible Tokens (NFTs)

The list goes on and on, and when looking at these achievements (along with past market highs) it is easy to get excited over what is to come in the next few years, overlooking our continued need/reliance for traditional finance.  If looking for a reality check, and to temper expectations, you don't need to search far beyond the current market slump.

Just last week, Canada's crop of major banks each released their latest earnings reports – highlighting that despite how far digital assets have come, they still have a mountain to climb before freeing us of our reliance upon traditional finance.

Canadian Banks Performing Better than Expected

As it stands, much of the world is currently experiencing a high state of inflation – with Canada being no different.  However, despite operating under what would seem like difficult conditions, big banks within the nation continue to post numbers higher than anticipated.

As Canada's big banks released second quarter earnings reports this past week, one after the other each announced better than expected earnings, which mostly resulted dividend hikes.

Royal Bank of Canada (RBC)Toronto Dominion (TD)Canadian Imperial Bank of Commerce (CIBC)Bank of Nova Scotia (ScotiaBank)Bank of Montreal (BMO)
Net Income (CAD)$4.3B$3.8B$1.5B$2.7B$4.7B
Year-over-Year (YoY) Return+6%+3%-8%+12%+4%
Dividend Hike+7%N/A+3%+3%+4.5%

Essentially, during a time when inflation is out of control, housing markets reaching new heights, and fuel prices through the roof, traditional finance remains as lucrative and resilient as ever.

Can Digital Assets Compete?

Among the big banks, the following were each areas noted as having contributed towards the better than expected performance.

  • Retail and Commercial Lending
  • Wealth Management
  • Insurance
  • Fees

Promisingly, when looking at the above list of reasons contributing to the performance of Canadas big banks, each are areas which digital assets have the potential to disrupt.

Lending services are already commonplace in both a centralized and decentralized fashion, while Decentralized Autonomous Organizations (DAOs) have the ability to supplant traditional wealth management and insurance services.  Fees on the other hand can be greatly diminished through assets like Bitcoin on the Lightning Network.

This ability to one day supplant, or at least coincide in the mainstream with the bread-and-butter services on offer by the big banks points to a bright future.

The Takeaway

As it stands, it is believed that roughly 300M people from around the world began the year as digital asset users – which is a drop in the bucket.  All this does is highlight not only the distance to go for developing technologies like DeFi (which facilitate loans, interest bearing accounts, value transfers, etc.), but also the potential that has yet to be realized.

There will be more DeFi hacks, UST-esque collapses, and bear markets along the way, and while digital assets may be years from fully supplanting existing services, progress is being made at a steady pace.  Eventually the Lightning Network will be commonplace, regulatory ambiguity will be a thing of the past, and our reliance on big banks will be no more.

Joshua Stoner is a multi-faceted working professional. He has a great interest in the revolutionary 'blockchain' technology.