Taking a page from the gold rush.
Photographer: Ulrich Baumgarten / Getty Images
Photographer: Ulrich Baumgarten / Getty Images
True Bitcoin believers always take a victory lap after the cryptocurrency’s fresh high of nearly $ 20,000. “On and on we go to the moon!” tweets Tyler Winklevoss. “All governments, [financial services] and corporations will soon be mining Bitcoin to guarantee their own supply, ”echoed Bitcoin advocate Charlie Shrem. That seems to be true of the Venezuelan army, at least.
But is this new record going to convert a often questionable financial sector, at least beyond hedge funds and strategists who see Bitcoin as Covid-19 safe haven? Not everyone is convinced.
Last month, as the cryptocurrency hit $ 18,000 for the first time since 2018, Jamie Dimon made it at JPMorgan Chase & Co. he said he hadn’t changed his mind since he fraudulently called Bitcoin during its bubble in 2017. “We believe in cryptocurrency, properly regulated and properly supported,” he said, adding, ” a different kind of Bitcoin, and that’s not my cup of tea. ”
A message for Wall Street
But, as bitcoin’s enthusiasm kicks in again, are bankers really listening?
Source: Bloomberg
Dimon’s stance ultimately reflects the tone inside the swivel bracket banks that have been dipping their toes in crypto waters. Created during the 2008 financial crisis as an artificially rare, cryptographically secure way to bypass traditional finance, Bitcoin will not be considered an existential threat to the banking system simply because its price is soaring. But it won’t be ignored either. Instead, it will be seen as a catalyst towards the future of more digital, regulatory-friendly post-Covid payments.
We have seen large banks trying to make money from untreated Bitcoin directly, reflecting relatively limited client demand and a lack of regulatory clarity. That is still the preferred option. Morgan Stanley began clearing the future of Bitcoin settled by cash in 2018, while JPMorgan this year adopted Coinbase Inc.’s crypto exchanges. and Gemini Trust Co. Winklevoss twins as corporate banking clients.
Smarter proposals such as Goldman Sachs Group Inc.’s application i opening a crypto trading desk never really had it anywhere. The long list of risks highlighted by the Bank for International Settlements, from money laundering and terrorist finance to reputations, could have something to do with it. A. a survey of financial assets between 2010 and 2019 on the Bank of England staff blog found that the Bitcoin market’s downside risk is 44%, steeper than stocks or gold.
None of this would normally be insurmountable to bankers when there is real money to be made. But even with serious amounts changing hands on crypto exchanges, and funds like Guggenheim Partners LLC eyeing Bitcoin, the proverbial phone still does not turn off the hook.
Even parts of the banking sector that are willing to go further know that they need regulators. DBS Group Holdings Ltd. from Singapore in plans to run its own digital currency exchange for eligible investors, but only after it has received regulatory approval. There is certainly more oversight in 2020 than there was in 2017: EU anti-money laundering rules now extend to crypto exchanges, and US regulators allow banks to offer cryptocurrency custodian services. Still, the head of the European Central Bank, Christine Lagarde this week Bitcoin and its like were repeated as “highly volatile, illiquid and speculative.”
So Bitcoin itself is not the bigger question for Wall Street banks but what comes next, especially as its clunky shortcomings as a payment method are well known. Central banks and private companies alike are scrambling to find an alternative on the mass market that could fix them. That could include tickets issued by a central bank such as a a digital euro, which is at least five years away, or a private coin like Libra, which can be just one a month away. Banks’ business models could be vulnerable.
QuicktakeThe Future of Crypto Currency
For JPMorgan, it makes sense to pursue blockchain ideas like JPM Coin that could save banks money in payments. The benefit is not just cost savings, but it also attracts smart technology talent, as evidenced by LVMH executive Ian Rogers move to crypto hardware startup Ledger.
Lenders have no choice if they want to compete with digital competitors out to eat their lunch. A recent Paypal Holdings Inc. search into Bitcoin is part of a wider fintech push with apps like Venmo. The company is too talk to regulators about digital wallets. In a post-pandemic world of low rates and rising defaults, banks are worried about the tech crowd. After all, in the euro zone non-banks overtook traditional banks’ market share of deposit taking and lending in 2018, according to the Center for Economic Policy Research.
Maybe Crypto is coming back after a long time winter, but in Bitcoin, bankers can afford to hibernate a little longer. Staying one step removed, by offering banking services to currency swaps or facilitating futures trades, is equivalent to selling pickles and shovels during the gold rush. Dimon’s right to withhold.
This column does not necessarily reflect the views of the editorial board or Bloomberg LP and its owners.
To contact the editor responsible for this story:
Melissa Pozsgay at [email protected]