Years ago, at the World Economic Forum in Davos in 2014, Jamie Dimon, the chief executive of JPMorgan Chase, largest bank in the United States, called Bitcoin a "terrible" store of value that was also being used for illicit purposes. At a meeting to discuss violations of Iran sanctions, H. Rodgin Cohen, the finance industry’s most influential lawyer, warned the state’s regulators that the federal government was "very worried" about Bitcoin and its use. How times have changed..
Because those efforts failed. The New York’s Department of Financial Services began issuing licenses for Bitcoin businesses in 2015 and now there are now more than 75 million users of Bitcoin, up from around three million seven years ago. The number of digital currencies has literally exploded everywhere. Globally, 220 million people now use cryptocurrencies, according to a July report by the website Crypto.com. The value of Bitcoin went through the roof, making the market cap larger than the economies of individual developed countries.
But the record highs for Bitcoin are only part of this story. Because the bankers say they are investing in digital asset expertise for defensive reasons. They do not expect to set up operations trading in unregulated cryptocurrencies. They do believe that one day they will be trading in tokenised stocks and bonds approved by the regulators. "If you aren’t ready to go on Day One, it will be too late," said an insider.
The distributed ledger technology that underpins cryptocurrencies could make regulated transactions faster, cheaper and more sophisticated. And that is useful to the traditional financial system too. So the big banks have been experimenting for years. But there are three reasons that the big banks didn't fully jump on cryptocurrencies yet.
First, they have poured huge capital expenditure into legacy systems that they have no interest in disrupting. Second, there is no reliable legal or regulatory framework for dealing in digital assets. Third, there is a "collective action problem", the syndrome whereby telephones are useless unless many people install them.
Instead, at this moment it has been left up to Bitcoiner believers to show that a digital asset can be widely held and exchanged, albeit sometimes unreliably and disreputably. Bitcoin may therefore prompt the introduction of government sanctioned digital currencies as an alternative. China already has a limited version of this. European central banks aspire to follow suit as soon as possible. The United States and the United Kingdom are still sitting on the fence.
But things seem to be changing. Just last year, Bank of America filed the biggest number of patent applications in the bank’s history, including hundreds of patents that involve digital payments technologies. It’s unclear how exactly the bank plans to use its technology, but it was also driven by the desire to keep customers within the bank’s systems rather than lose them to new cryptocurrency start ups that allow them to transfer money free.
"Bank of America sees potential in blockchain, and we’re currently a leading patentholder in the space with more than 160 patents,” a spokesman, Mark Pipitone, said. "But we still haven’t found a use at scale to make the financial lives of customers and clients better."
Other big banks are embracing even more direct contact with cryptocurrencies. Bank of New York Mellon and Northern Trust are working on offering custodial services to their clients, essentially bank accounts for other banks, that would be able to hold Bitcoin. On Oct. 5, U.S. Bank announced that it would offer cryptocurrency custody services to money managers.
A recently launched exchange traded fund from US specialist ProShares has been described as "the first Bitcoin ETF". In reality, its exposure comes from regulated futures. Nor can retail clients of Fidelity buy Bitcoin through its platform, although they can use it to view holdings on Coinbase, a well known cryptocurrency exchange.
Nomura, as another example, does not handle cryptocurrencies itself, but has a stake in a custodian that does. Banks including JPMorgan, Morgan Stanley and Deutsche Bank regularly publish research on digital assets. This is usually observational in tone and sometimes gives recommendations on shares of cryptocurrency businesses.
The United Kingdom is even way ahead of the United States, with banks such as Revolut already allowing their customers to directly invest in cryptocurrency. It is apparent that the financial establishment has tentatively begun to assimilate parts of the cryptocurrency world that may be useful to it. Or at least they will be trying.
Sources:
https://www.nytimes.com/2021/11/01/business/banks-crypto-bitcoin.html
https://www.ft.com/content/7556f53f-bf3e-42cd-ab04-dac0097440f0
It was their big escape plan, they said crypto was crap, bought the dip, then inflated the fiat currency ensuring their crypto holdings and real estate would do well.
Interesting for sure. I'd like your opinion. I have a friend who is a big time commodities trader for one of these large banks. He's not in the Goldman Sachs kid raping club, but he rubs shoulders with those types. He's convinced they are going to kill crypto. He says they are going to do it by co-opting the fiat onramps. I hope he's wrong, but what do you think about that?
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I'm sure it's true, and it's one of the frontlines we have to be on.
I own no bank account (I haven't for more than 20 years now), and living in El Salvador allows me to receive and spend cryptos without any conversion to fiat - as I may buy my daily food, pay my rent, etc. through BTC. My situation must be a "worst case scenario" for your friend's acquaintances... And a whole array of pressures will most probably rise on our government.
That's amazing! I wish I was in your shoes. I can't do much with crypto besides investing at this point. Some local merchants are starting to pick it up though so hopefully soon. You're right about the pressure coming for El Salvador. I hope they hold out. I spent some time in El Salvador back in 2008 and I love that country. Look at "Diary of An Economic Hitman" though to see the stuff DC is willing to do to Latin Americans that defy their edicts.
Yes, let's work for that trend to extend to many countries! Isn't there a "HBD for retail" adoption project? (I remember that a series of Steemit users were promoting the Steem & SBD as daily means of payment, some years ago, and they've most probably converted into Hivers, now 😊). Another path is to use @brianoflondon 's great Hive dApp to instantly swap Hive or HBD into satoshis, and to look for shops accepting Lightning Network in Wyoming - or to propose them to accept it 🙃.
True, there are tough ordeals coming for us, but at the same time the support generated from crypto communities, in particular from Hive (LeoFinance, OCD, etc.) will play a crucial part in our resistance.
I wish some other countries like Panama and Ecuador would jump on the cryptocurrency bandwagon and start moving away from the dollar. The more countries do it the better. The US can't invade everyone.
True! Several countries could do it in the short term, and adopt what Mark Goodwin calls the "Bitcoin dollar" (
The ones I'd see shifting the most easily are Argentina (because its peso is hugely devalued compared to the dollar) and Russia (to minimize the political sanctions impacts and to boost their economy).Thanks for this article, Mark, which is very informative! 🙂
I'd even say you've chosen not to express in it your personal view on the trend you describe - even if I'd be interested in knowing it, lol.
What would - or could - be a bank's part in a deeply "crypto-ized" economy (like it seems it's giving its first steps here, in El Salvador)? Wouldn't DeFi, decentralized exchanges and algorithmically regulated currencies eliminating the need for intermediaries also mean that banks will be deleted, in the new state of things we're building?
Very interesting article, upvoted and shared.
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The UK banks are split at the moment. Lloyd's Bank group, who owns other popular banks here have totally blocked crypto purchases. I'm in the process of changing banks because of this.
Currently the only way I can buy crypto is depositing GBP via bank transfer which takes about 3 days. Unacceptable.
There are some cats around my basement, and those I point out, never know if they either prefer to go in or "out" when I open the door, banks rather feel like "there is no such things as out with our fake money... I don't see what you're talking about madler, yes you my dear little diddy".
It is somehow a cryptographic challenge to understand myself sometimes.