Regional Banks Push Into Crypto, Coinbase Widens Its Net, and Cyclicals Outrun Defensives

Are Regional Banks Ready for Crypto?

With digital assets having moved into the financial mainstream and the regulatory environment slowly becoming clearer, it is no surprise that mid-tier and small financial institutions in the US are looking for a slice of the action.

Regional banks are well placed to tap into crypto markets. Various surveys suggest consumer confidence in this segment of the financial services industry has recovered from the negative publicity that surrounded the demise of First Republic Bank, Silicon Valley Bank and Signature Bank in 2023.

The largest banks may have, in the words of one research firm, improved service quality with innovative technology platforms that simultaneously meet clients’ growing demand for digital banking capabilities while enhancing the quality of relationship manager coverage.

Related: US Banks Can Now Buy and Sell Customers’ Crypto Assets: OCC Clarifies

But their smaller rivals often have a more direct relationship with customers and have responded to demand from younger clients for better technology. They have also shown a willingness to partner with fintechs to access advanced technology, while their size enables them to introduce new services more quickly.

PNC has taken a lead in this space by allowing customers to buy, hold and sell crypto within its app, offering new services on a familiar platform. The logical next step would be to allow these customers to exchange loyalty points for cryptocurrency.

The Pittsburgh-based bank has also taken a considered approach to product targeting, focusing on its wealthiest customers and institutional clients who are familiar with digital assets.

Buoyed by federal banking regulators’ retractions of advisories that cautioned banks against offering crypto services to clients, and statements that banks are not required to seek permission to engage in specific crypto activities, PNC will surely be only the first of many regional banks to provide customers with direct access to cryptocurrency trading.

All Change in the Exchange

Enabling the customers of a major global bank to directly connect their accounts and use credit card rewards to buy crypto is clearly a big deal for Coinbase – but the exchange has much bigger ambitions.Max Branzburg, Vice President of Product at Coinbase (Photo: LinkedIn)

In an interview with CNBC at the end of July, Coinbase's vice president of product, Max Branzburg, said its vision was for a platform that supports stocks and derivatives as well as early-stage token sales. He said this expanded offering would be available to US traders in the next few months, with other markets to follow as regulatory approvals are secured.

These comments signal Coinbase’s intention to become a universal trading platform and compete more aggressively with established financial institutions and fintechs, as well as the likes of Robinhood.

Read more: Tokenised Stocks Are Here, but Do They Really Bring Added Value over CFDs?

Tokenisation of real-world assets such as stocks will be a key component of this expansion and has been boosted by the pro-digital asset occupant of 1600 Pennsylvania Avenue – although Coinbase will hope its offering is received more favourably than Robinhood’s. The latter’s tokenised versions of more than 200 US stocks and ETFs drew criticism from private companies such as OpenAI for not being equivalent to equity.

Coinbase also has its eyes on prediction markets, which seem likely to be viewed more favourably by the CFTC despite a US congresswoman calling for an investigation into the nominee for chair of the regulator over his position on the board of Kalshi.

A note published by Kaiko Research following Coinbase’s second-quarter results highlighted the importance of expanding its revenue base. The firm observed that the reliance on hype and market moves is a key reason the exchange wishes to be seen as a super app.

Caught in a Spin

This year's market conditions should have logically favoured defensive stocks, yet cyclical sectors have outperformed traditionally more stable segments.

Geopolitical turmoil, elevated stock markets, and the reshaping of the global trade ecosystem as a result of US tariff policy would all suggest a flight to shares of companies providing products and services that remain in constant demand regardless of economic conditions.

Defensive stocks have shown some signs of life this year, notably after ‘Liberation Day’ when the tariff war between the US and China ramped up. But this was short-lived, and cyclical stocks have since climbed to previously unseen levels compared to their non-cyclical counterparts.

There are reasons for this, including a favourable interest rate environment that has benefitted financial services companies, along with the rapid growth of AI and increased demand for digital services that has driven tech stocks higher.

Some of these factors might have been expected to boost defensive sectors such as healthcare and energy, which also have tailwinds from an ageing global population – the WHO projects that the number of people aged 60 and older worldwide will increase from 1.1 billion in 2023 to 1.4 billion by 2030 – and from supply disruption.

But energy stocks are under pressure from oversupply. Just last week, OPEC+ announced a higher-than-expected increase in output and its intention to end the voluntary output reduction it imposed in 2023, moves which caused oil prices to fall.

Meanwhile, shares in healthcare companies have been hit by the US government’s plans to reduce the price citizens pay for drugs. President Trump sent letters to 17 leading pharmaceutical companies earlier this month outlining steps they must take to lower prescription drug prices for Americans, including matching the lowest price offered in other developed nations.

However, none of this means those holding defensive stocks should assume current trends will continue to the end of the year or beyond. Several analysts have predicted a correction in the value of the US’s leading companies in the short term – and if central banks turn dovish, this could happen sooner than expected.