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CICC: The impact of digital currency on the financial industry is happening

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Change begins from within, especially in the relations of production.

CICC: The Impact of Digital Currency on the Financial Industry Is Happening

The golden touch

Represented by the currency in 2020 digital currency prices rising fast, released on April Libra second edition, the white paper, bank for international settlements in October the BIS and 7 countries jointly set up a joint working group on central Banks digital currency, the People's Bank of China issued its first study the yuan (DC/EP) open pilot, digital currency caused global attention. We focus on financial institutions that are actively embracing digital currency (digital economy) and look for investment opportunities.

Domestically, at present, state-owned banks such as Industrial & Agricultural China Construction Bank are participating in the pilot of digital wallet. In addition, in terms of digital transformation, China Merchants Bank, Industrial and Commercial Bank of China, China Construction Bank, Ping An Bank, Bank of Ningbo, and Zhesang Bank are actively building digital capabilities, as detailed in theBanking: Digital banking reconfigures financial delivery, scenario/ecosystem management improves access and insight". Referring to the experience of the United States, there are currently a total of 9 banks in the United States that publicly provide services to cryptocurrency companies, which are called cryptocurrency-friendly banks. In 2020, the stock prices of Silvergate Bank, Silicon Valley Bank and Signature Bank will rise with the price and trading volume of cryptocurrency.

Abstract

Recently, digital currencies represented by Bitcoin have been booming, which we believe is mainly due to some investors' recognition of its "digital gold" nature. Cryptocurrency, as it is more accurately called, is a digital currency created based on an encryption algorithm. As of February 18, 2021, the world's top two cryptocurrencies by market value are Bitcoin and Ethereum. We believe that their booming market is mainly due to the recognition of their value by some international investors, that is, under ideal conditions, cryptocurrencies can be used for global payment transactions, transaction anonymity and low cost; 2) No storage costs; 3) The issuance is not determined by any institution or organization. For example, the Bitcoin protocol limits the total supply, thus giving it the inflation-resistant property similar to "gold". However, it is important to note that the "decentralization" of cryptocurrencies has regulatory risks; Blockchain-based cryptocurrencies are unstable in value; Blockchain-based payment networks struggle to achieve the number of transactions per second needed in real life.

Unlike cryptocurrencies designed and promoted by private organizations in the United States, the digital RMB (DC/EP), which the People's Bank of China is working on and launching, is an electronic cash based on national credit and has legal tender status. 1) In recent years, the development of digital economy has accelerated, and the launch of digital currency is to connect the transaction needs of residents, enterprises and financial institutions in the era of digital economy. 2) The central bank's digital RMB is an alternative to paper RMB and a kind of electronic RMB. Compared with cash and bank card payment, it is more convenient. Compared with the third-party payment, it has the status of fiat currency (that is, national credit is behind it). 3) Through the central bank's digital currency wallet, both parties can realize the peer-to-peer currency transaction and dual offline payment without intermediaries, so as to achieve privacy protection. 4) The plans of Facebook and others to promote Libra, a borderless global currency payment system, could have an unknown impact on fiat currencies.

After the introduction of the PBOC's digital currency, we believe that the shape of financial services may change, and the digital capabilities of financial institutions may be an important factor for future market competition. After the introduction of PBOC's digital currency, the financial services provided by financial institutions may change, including the transformation of infrastructure and service channel forms by financial institutions, as well as the reshaping of payment, deposit and loan, wealth management, risk control and other business processes. These trends have been beginning to emerge since 2013 (the first year of Internet finance), and we believe that the introduction of PBOC's digital currency will accelerate this process, and that more banking institutions, rather than just Internet companies, will be deeply involved. While the central bank's digital currency itself will not have an impact on the competitive landscape of the industry, institutions are once again on the same starting line when it comes to how to connect with the central bank's new digital currency system and how to deal with the uncertainty created by the digital currency. We believe that in addition to competitive drivers such as channels, scenarios, data utilization, product research and development, and infrastructure construction, digital capabilities will become significantly more important in future market competition.

risk

We see a dynamic balance between innovation and regulation. We continue to pay close attention to the impact of the development of digital currency on the financial industry, as well as the possible risks, including data security and privacy protection, data asset ownership, new financial risks, etc.

The body of the

The impact of digital currencies on the financial industry is already happening

The recent boom in digital currencies, such as Bitcoin, is mainly due to some investors' acceptance of its "digital gold" nature

The digital currency in this article should be called Cryptocurrency more accurately. Cryptocurrency is a kind of digital currency, which is a digital currency created based on a cryptographic algorithm. As of February 18, 2021, the world's top two cryptocurrencies by market capitalization are Bitcoin and Ethereum, with market capitalization of $942.6 billion and $2003 billion, respectively (compared to about $10 trillion for gold). The top two in terms of trading volume on February 18, 2021 were TEDA and Bitcoin, with $21.2 billion and $18.9 billion respectively.

► Bitcoin (BTC) was born in 2008. An individual or organization with the online name Satoshi Nakamoto published related papers and open source software [1]. Bitcoin and its payment system are decentralized, can be transmitted peer-to-peer without intermediation, and transactions are verified by cryptographic algorithms and recorded in a public distributed ledger known as a blockchain. Bitcoin is an incentive for a behavior known as "mining", rather than being controlled and published by a specific institution, and a "halving" event is set up in the protocol [2], so the total supply is limited.

► Ethereum (ETH) was born in 2015 [3]. Like Bitcoin, it is a decentralized cryptocurrency based on blockchain technology, but it is based on a different protocol. There is no cap on the number of Ethereum coins that can be used only on the Ethereum network and not elsewhere.

► Tether (USDT) was born in 2015 [4], and is a representative of the stable currency. Given COINS and other encryption currency volatility, stable currency arises at the historic moment, teda currency value and fiat anchor, behind have sufficient legal tender in cash or cash equivalents as collateral, a teda currency can be in teda platform to exchange for a $1 at any time, technology also use block chain (Facebook plans to issue the Libra is one of the stable currency, linked to the legal tender of a basket or some countries).

We believe that the market of digital currencies represented by Bitcoin is booming, mainly because some international investors recognize its potential value. They believe that digital currencies based on blockchain, electronic cryptography and other technologies will have demand for use or storage value in the future world. Specifically, cryptocurrencies should ideally:

1) It can be used for global payment transactions, transaction anonymity and low transaction costs;

► 2) No storage costs;

► 3) The issuance is not determined by any institution or organization, but based on an agreed electronic protocol. Specifically, for example, the Bitcoin protocol limits the total supply, so it has the properties of hedging, anti-inflation and anti-risk similar to "gold".

However, it should be noted that despite the above advantages, a significant number of investors still consider the "decentralized" nature of cryptocurrencies to be subject to regulatory risks; In addition, the value of cryptocurrency based on block chain technology is unstable, and the number of transactions per second can be realized by the payment network based on block chain technology is far lower than the number needed for daily life. At the same time, Bitcoin's computing power is increasingly monopolized by a few big mining pools, so its "decentralized" nature has become undeserved in the minds of some investors.

Chart: The main reasons for bitcoin's rise and fall: whether more residents and businesses accept its payment function; Regulatory constraints on Bitcoin; Demand for safe haven assets

Source: Yahoo Finance, CICC Research

Chart: Actively traded cryptocurrencies: The hot ride since 2020

Source: Yahoo Finance, CICC Research

Chart: Mainstream countries' attitude towards Libra after the launch of the Libra1.0 white paper: Governments are cautious about digital currencies

Source: Bloomberg, Reuters, CICC Research

Chart: Mainstream digital currencies based on blockchain technology have struggled to reach the high frequency transaction speeds needed for mass consumption

Source: wind info, cicc research source: Cointelegraph (https://cointelegraph.com/news/who-scales-it-best-inside-blockchains-ongoing-transactions-per-second-race;https://36kr.com/p/963801802038791)Note: Tmall, NetPay + UnionPay choose the transaction TPS of peak hours, and the TPS of different digital currencies is estimated at the beginning of 2019.

Chart: Bitcoin's computing power is increasingly centralized, dominated by a handful of mining pools, which has led some investors to argue that its "decentralized" nature has fallen short of its name

Source: BTC.com, Research Department, CICC

Central bank digital currencies are different from the above cryptocurrencies

Unlike cryptocurrencies designed and promoted by private organizations or commercial institutions in the United States, the digital RMB (DC/EP), which the People's Bank of China is working on and launching, is an electronic cash based on national credit and has legal tender status.

► The central bank's digital currency endorsed by national credit is different from the cryptocurrency designed and promoted by commercial institutions. The main difference is that the total amount is regulated by the central bank, based on national credit, and the currency value is more stable. On April 17, 2020, the People's Bank of China institute of digital currency announced [5], digital research and development work is in the steady, digital currency system on double operation, M0 substitute, under the premise of controllable anonymous, basically completed the top-level design, r&d, alignment test standards, function, and first in shenzhen, suzhou, male, chengdu and future games scene internally closed pilot test.

► Chinese authorities ban the issuance of tokens by commercial institutions. On September 4, 2017, the People's Bank of China and other seven departments jointly issued the announcement for the issue of financing risk prevention tokens, "[6], announcement," scrip issue of financing in financing means by tokens, illegal sale, circulation, to investors to raise the currency, etheric currency, such as the so-called "virtual currency", in essence is a kind of illegal public financing without approval, the alleged illegal sell promissory notes, illegal securities issuance and illegal financing, financial fraud, pyramid schemes and other illegal and criminal activities ", moreover emphasizes "tokens in the issue of financing used tokens, or" virtual currency "issued by the monetary authorities, It does not have legal compensation and mandatory monetary properties, does not have the same legal status as currency, cannot and should not be used as currency in the market circulation ". Thereafter, all the financing of token issuance was stopped, the trading platform of token financing was shut down, and financial institutions and non-bank payment institutions did not carry out relevant businesses. We believe that the cryptocurrencies represented by Bitcoin without state credit endorsement face greater regulatory risks when investing.

► Many countries have proposed to explore a central bank digital currency (CBDC). Digital currency according to the bank for international settlements on the central bank's survey report for the third time [7], the fourth quarter in 2020 from the questionnaire survey covered 65 global central Banks, involved 44 21 developed economies and developing economies, accounting for 72% of the world's population and 91% of the world's economic output, 86% of the central bank said, they at least consider the pros and cons of issuing CBDC, up from 80% last year. In addition, 60 percent of central banks are currently experimenting or proof-of-concept with CBDCs, up from 42 percent in 2019, and the report predicts that central banks representing one-fifth of the world's population could launch universal CBDCs within the next three years. Of course, the report also emphasizes that while research on CBDCs is emerging, global adoption of CBDCs may still be years away, with half of central banks saying in 2019 that they are "likely" to issue CBDCs in the near term, while in the 2020 survey, they downgraded this sentiment to "likely" or "unlikely." Among the central banks surveyed, the legality of CBDCs remains an open question. Forty-eight percent of central banks were unsure whether they had the authority to issue digital currencies, while 26 percent were certain they did not.

Chart: Conceptual differentiation of various currencies

Sources: Libra White Paper, Bitcoin White Paper, CSI, CICC Research Department

Chart: The central bank's digital currency research process tracking, has been piloted in many places

Source: China Securities Net, Xinhua Net, CICC Research Department

Chart: The 14 cores of central bank digital currencies from the Bank for International Settlements

Source: BIS, Research Department, CICC

Chart: International organizations and governments' views on central bank digital currencies

Source: BIS website, Bloomberg, Research Department, CICC

The shape of financial services is likely to change after the PBOC's digital currency is launched

The development of the digital economy is accelerating, and digital currency connects residents, businesses and financial institutions online. According to CITIC Information and Communications Research Institute, the added value of China's digital economy reached 35.8 trillion yuan in 2019, accounting for 36.2% of GDP, and emerging digital industries such as e-commerce and live streaming are still emerging. Especially under the epidemic situation, a large number of consumption, entertainment, office activities migrated to the online, the launch of digital currency is to adapt to the new economic environment.

Digital RMB is an alternative payment tool for paper currency and a kind of electronic RMB. In the digital economy era, the mobile Internet era, the use of central bank figures compared to the use of cash and bank CARDS are more convenient, compared to a third-party payment, the bank number RMB has the legal tender status, i.e. individuals, enterprises and institutions in China are not refused to accept the yuan central bank figures, and behind the national credit; In addition, the digital RMB of the central bank can realize dual offline payment, that is, both parties can also make payment when there is no network.

► The PBOC's digital RMB can achieve peer-to-peer currency transactions without intermediaries. Similar to cash, the digital RMB of the central bank can be used for direct payment, transactions, private lending and investment, without the need to bind banks or other intermediaries, or the Internet, as long as both sides have the central bank's digital RMB wallet, it can be completed with a touch.

► The scenarios in which the PBOC's digital RMB wallet is related to a bank account or an account of a non-bank payment institution include charging the money from the account into the PBOC's digital RMB wallet (similar to an ATM for withdrawal), and transferring the money from the PBOC's digital RMB wallet into an account (similar to an ATM for deposit) to purchase financial products, etc.

Chart: The scale of China's digital economy continues to develop, and the digitization process of various industries is accelerating

Source: China Academy of Information and Communications Technology, Research Department, China International Capital Corporation Note: Digital economy size is the value added to the current year price

Figure: "Lixiangluohu" digital wallet test example

Source: Window of Shenzhenhttps://city.shenchuang.com/city/20201012/1560961.shtml, Research Department, CICC

Chart: Sample collection of "Lixi Luohu" merchants

Source: Economic Observer, Research Department, China International Capital Corporation

Chart: Schematic diagram of the internal test wallet of CCB of the central bank's digital currency

Source: Blockbeats, CICC Research

Chart: Digital RMB, sub-wallet and "hard wallet" patterns in the digital currency test

Sources: Mobile Payment Network, China Business News, Research Department, CICC

After the introduction of PBOC's digital currency, the financial services provided by financial institutions may change, including the transformation of infrastructure and service channel forms by financial institutions, as well as the reshaping of payment, deposit and loan, wealth management, risk control and other business processes. These trends have been beginning to emerge since 2013 (the first year of Internet finance), and we believe that the introduction of PBOC's digital currency will accelerate this process, and that more banking institutions, rather than just Internet companies, will be deeply involved.

In terms of financial service channels, the introduction of digital currency by the People's Bank of China will shift from offline to online services such as currency deposit and withdrawal, payment and remittance, and the frequency of use of physical outlets and physical machines such as ATM may decline. Online channels such as mobile apps and direct banking may become more important competition battlegrounds. The number of online POS and ATMs declined for the first time year-on-year in 2019, according to the central bank. According to the data of QuestMobile, monthly payrolls of Alipay APP increased from 150 million in December 2014 to 770 million in December 2020. For bank APP, taking ICBC and China Merchants Bank as examples, monthly payrolls of ICBC + ICBC E-Link increased from 19.67 million to 120 million, and monthly payrolls of China Merchants Bank + Handheld Life increased from 49.49 million to 120 million.

Supporting technologies, such as risk prevention and control and payment network, also need to be updated and upgraded with the launch of the central bank's digital currency. For example, security technologies have been expanded from traditional paper currency security, transportation and storage security to the research and development of electronic encryption technology.

► Changes in the nature of the data held by financial institutions. The promotion of the central bank's digital currency will precipitate more online transaction data of C-end users for the APP end of banks. Moreover, different from the previous low-frequency and lagged data, the new data has the characteristics of real-time and continuous, that is, it will be automatically recorded into the database immediately when transactions and other behaviors occur. Data from less to more, from the breakpoint to continuous, from lagging to real-time, for financial services institutions use value larger, more worthy of dig deep, to improve the customers, management and risk control, at the same time, also for data capture, data collection, data storage, data analysis, data encryption and so on digital capability and infrastructure building, higher requirements are put forward.

In terms of customer acquisition, relying on more transactions and even data information such as entertainment, social contact, transportation and living payment, the customer acquisition mode of banks will be transformed from offline single point marketing to online batch customer acquisition mode, which is conducive to expanding the coverage of financial services, especially to developing and reaching the financial needs of Puhui customer group. To be specific, the central bank's promotion of digital money, online data information to increase, the bank received guest way by the original customer manager offline sweep floor sweep the street stalls, etc into online customer label and image analysis, and based on the targeted online batch ads or preferential, precision marketing costs for customers to reduce single guest for guest, expand the scope of guest, promotion for customer success. For the Pratt & Whitney customer group, the problem of obtaining customers is difficult to obtain customers and expensive customers may be partially solved.

Excellent in terms of loan business operations and risk control, data on line, especially the more continuous, real-time, automatic record of transaction data, bank credit lending, can be partly solves the problem of asymmetric information, we expect the bank credit loans to small enterprises and individual industrial and commercial households proportion may ascend, is advantageous to the mortgage assets less pratt &whitney customers to obtain credit resources. In addition, there is no need for labor in the loan approval and launch process, which saves costs. Contrast Internet pratt &whitney credit providers on behalf of the bank of electronic retailing and traditional pratt &whitney tyrone bank credit service providers, from the point of view of the current financial data, the latter is still there is advantage in operating costs and credit costs, but the trend on the on-line credit model may need to strengthen research, and speeding up the technology of offline credit model can assign, promote a comprehensive financial service ability, after online credit technology is more mature in response to competition.

In terms of deposit and financing, the construction of digital currency and related channels makes small investment more convenient. Some cash and demand deposits may be replaced by cash management products. Banks should actively grasp the development opportunities of capital management, financing and commission sales business.

Chart: The number of connected POS and ATMs declined for the first time year-on-year in 2019

Source: Research Department, CICC, People's Bank of China

Chart: In the non-cash payment, the proportion of mobile payment and online payment by non-bank payment institutions increased

Note: 1) Non-cash payment is divided into bills, bank cards, credit and transfer, direct debit, collection and commitment, domestic letter of credit, payment by non-bank payment institutions according to the type of instrument business; According to the instruction carrier, it is divided into online payment of bank electronic payment, telephone payment of bank electronic payment, mobile payment of bank electronic payment, and network payment of non-bank payment institutions. 2) Since the second quarter of 2018, barcode payment business data of physical merchants has been adjusted from online payment to bank card receipt for statistics.

Chart: In non-cash payments, the proportion of mobile payments and online payments made by non-bank payment institutions increased

Note: 1) Non-cash payment is divided into bills, bank cards, credit and transfer, direct debit, collection and commitment, domestic letter of credit, payment by non-bank payment institutions according to the type of instrument business; According to the instruction carrier, it is divided into online payment of bank electronic payment, telephone payment of bank electronic payment, mobile payment of bank electronic payment, and network payment of non-bank payment institutions. 2) Since the second quarter of 2018, barcode payment business data of physical merchants has been adjusted from online payment to bank card receipt for statistics.

Chart: The occupation of retail payment market can lead to a higher monthly APP activity, which helps financial institutions gain more potential financial customers

Source: QuestMobile, Research Division, CICC

Chart: Internet Inclusive Credit Provider represents NetBank VS traditional Inclusive Credit Service Provider Tyrone Bank. It may need to further strengthen technology enabling and integrated financial service capabilities to cope with the competition from Internet companies

Source: Company Announcement, Wind Info, Research Department, CICC

Digital capabilities will become an important factor for financial institutions to compete in the future market

China has designated some institutions to participate in the central bank's digital currency pilot and proposed a technology-neutral horse racing mechanism. Central bank said, director of the institute digital currency MuChangChun [8], "DC/EP's dual operation system, the central bank to do the upper, the commercial Banks to do the second", "several specified operations take different technical route for DC/EP's research and development, at present belongs to the state of horse racing, whose route is good, who will eventually be accepted by common people, was accepted by the market, who can beat the game". From the previous digital RMB pilot activities held in Shenzhen, Suzhou, Beijing and other places, the opening of digital wallet of digital RMB APP is limited to ICBC, ABC, China, China Construction Bank and other six state-owned banks; Third-party payment enterprises are mainly involved in the expansion of digital RMB application scenarios, verification of digital RMB acceptance interface, standardization, and traceability of blockchain technology, including Jingdong, Meituan, Lakala, etc. [9].

The central bank's digital currency itself will not have an impact on the competitive landscape of the industry, but we expect that the digital capabilities of financial institutions will become an important factor in the future market share competition, in addition to the past scenarios, channels and other factors. In the current financial industry competition, channels, the scene is financial institutions and the third party payment companies received the guest's key, the accumulation of data use, product rapid iteration and related infrastructure construction is to realize the high efficiency of management and sound risk control, the basis of the People's Bank of China digital currency launched itself does not change the competitive landscape in financial industry, but in the new system, how to deal with how to connect the central bank digital currency uncertainty brought by the digital currency, institutions at the same starting line again. We believe that, in addition to the above-mentioned channels, scenarios, data application, product research and development, infrastructure construction and other factors, the importance of digital capabilities in competition has been significantly enhanced, and digital capabilities will also further enhance the advantages of financial institutions in the original driving factors of competitiveness.

China Merchants Bank, Industrial and Commercial Bank of China, China Construction Bank, Ping An Bank, Bank of Ningbo and Zhesang Bank are all actively building their own digital capabilities. For details, please refer to "Banks: Reconstruction of Financial Supply by Digital Bank, Scenes/Eco Management Enhancement of Reach and Insight".

For China merchants bank, bank in 2014 to build the financial science and technology, in 2016 formally put forward the financial strategy of science and technology, financial technology for nuclear power, to speed up the digital transformation, with China merchants bank, handheld life live on two APP rapid growth as an important breakthrough of improving customer experience, China merchants bank service advantages from offline to online migration. From 2017 to 19, the proportion of science and technology investment in the revenue increased from 2.1% to 3.7%. At the end of 1H20, the number of R&D personnel reached 8,119, 4.8 times that of 2017, accounting for 9.2% of the total number of the Olympic Group.

Industrial and Commercial Bank of China (ICBC) held a roadshow on December 18, 2020 on the theme of "technology-driven, value creation". In 2015, ICBC formulated a clear strategy for the development of science and technology. In 2019, its science and technology department has 16,500 staff, accounting for 3.7% of the total staff, and its investment in science and technology is 16.4 billion yuan, accounting for 1.9% of the revenue. Specifically, the transformation includes: 1) Starting the IT architecture transformation 5 years ago, switching from IBM mainframe to dual core architecture. 2) In terms of customer acquisition, the single model based on relationship is transformed into scenario-based batch model. 3) In terms of customer marketing, the company will transform from wide-net advertising to accurate and intelligent marketing based on online data of customers. 4) In terms of risk control, it will change from human-controlled to machine-controlled, and then to intelligence-controlled in the future. 5) The main service site has been transformed from a branch to a mobile banking APP. 6) The cooperation mode of science and technology department and business department is transformed from waterfall to agile team. See "ICBC: Fintech Reshaping Business Model, Benefiting Customer Acquisition, Operations and Risk Control" for details.

With the AI Bank as the core, Ping An Bank builds an open Bank ecology, and creates a structured AI Banker system of data knowledge layer, technology middle platform layer, business middle platform layer and scene application layer from bottom to top, enabling scenes to gain customers. By the end of September 2020, the company has issued a total of 195 mid-stage capabilities, enabling 245 foreground scenes online. Since Xie Yonglin became the chairman of Ping An Bank at the end of 2016, Ping An Bank's technology application has gone through four stages of transformation and transformation: system restructuring, construction of technology center and data center, transformation of business center, and establishment of an open bank.

► Bank of Ningbo will launch a new APP in 2019 to realize the integration of various businesses. Retail: 1) From the financial scene to the pan-financial services, through the construction of marketing middle platform, realize offline activities quickly online, online scene life frequency; 2) Leverage financial technology to deepen digital operation and build a customer digital label system to cover major customer operation scenarios; 3) Promote the construction of online intelligent marketing system, build an automated and precise layered customer marketing system, and accelerate the implementation of digital operation. In terms of corporate business, 1) Accelerate the layout of APP of Good Housekeeper of Notes and Gold Housekeeper of Foreign Exchange; 2) Complete the platform upgrade and realize the free configuration of the homepage page. In addition, Bank of Ningbo uses the new data center to form a double living architecture with the existing data center, which enhances the system support capacity and ensures the business continuity.

From 2014, Zheshang Bank began to deepen its platform-based business from its bill pool, and now it has formed a "3+2" platform mode, which is mainly composed of a pool-based financing platform, a receivables chain platform and an easy enterprise banking platform. The platform-based service strategy was formally put forward on November 11, 2019. By solving the financing problems of enterprises and improving the efficiency of the industrial chain, the platform-based mode can form the industrial chain ecosystem, help banks achieve batch customer acquisition, reduce information asymmetry and improve risk control ability. See "Zheshang Bank: Positioning Platform Service Strategy, High-growth Stock Bank" for details.

In the US, for example, share prices of cryptocurrency-friendly banks in the US, which are actively embracing new things, have outperformed as cryptocurrency prices and trading volumes have soared. According to blockchain think tank PanEWS [10], as of August 6, 2020, nine banks in the United States are publicly offering services to cryptocurrency companies, namely JPMorgan Chase, Silicon Valley Bank, Signature Bank, Provident Bank, Metropolitan Commercial Bank, Cross River Bank, Silvergate Bank, Evolve Bank and Trust, and M.Y. Safra Bank. Shares of some cryptocurrency-friendly banks have risen along with the price and trading volume of Bitcoin. From 2019/12/31 to 2021/2/18, the price of Bitcoin has increased by 624%, while Silvergate Bank, Silicon Valley Bank and Signature Bank have increased by 866%, 108% and 58%. Compared with the Dow Jones Bank Index, the performance is better.

Chart: The amount of investment in science and technology by listed banks in 2019 (above); S&T investment/revenue of listed banks (Figure below)

Source: Company Announcement, Research Department, CICC

Chart: There are nine cryptocurrency-friendly banks in the US that serve cryptocurrency companies

Sources: PanEWS, Yahoo Finance, Company Announcements, CICC Research & NBSP; Note: Total assets of the bank as of 2020/12/31, market value as of 2021/2/18