The Big Banks Are Coming For Bitcoin

No matter what Jamie Dimon may say, bitcoin’s durability can be expressed by one simple fact: With a market cap of $100 billion, digital currencies have become too big for banks to ignore.

As Bloomberg recalls in a story about how banks are preparing to confront the thorny regulatory issues related to dealing in bitcoin and other digital currencies, on the same day Dimon trashed bitcoin, calling it a “fraud,” his firm’s private bank hosted a panel featuring cryptocurrency investors, and even helped some wealthy clients transact in a bitcoin exchange-traded product listed in Stockholm, raising questions about whether the bank violated its fiduciary duty in doing so.

Dimon isn’t the only one of his peers to harbor reservations about bitcoin. Bridgewater Associates’ Ray Dalio and BlackRock’s Larry Fink have criticized it as a “bubble” and a “a tool used by criminals.” Morgan Stanley CEO James Gorman defended bitcoin, arguing that it is “more than just a fad.”

But with clients demanding bitcoin exposure in greater numbers, banks have little choice but to assent to their demands, like JPM did. Goldman’s tentative embrace of bitcoin has so far also been the most ambitious, with the firm saying it is considering opening a bitcoin-trading business that would function like an interdealer broker for exchanges and large players.  

Two days ago, Goldman CEO Lloyd Blankfein tweeted that he’s still on the fence about bitcoin, and that he’s “not endorsing or rejecting” the digital currency.

But for banks hoping to enter the bitcoin business, many unanswered questions remain. For example, how do banks that are required by law to prevent money-laundering handle a currency that’s not issued by a government and that keeps its users anonymous?

According to Bloomberg, handling bitcoin would invite scrutiny from every major U.S. regulator, according to Joshua Satten, director of emerging technologies at Sapient Consulting.

“From the perspective of the U.S. Treasury, do you classify it as an asset class or a currency?” Satten said. “If banks are starting to manage and hold bitcoin for their clients, you would have the OCC and the FDIC looking at how they classify the assets on their balance sheet and how they state the assets for the portfolio of a client.”

However, the advent of cryptocurrency focused hedge funds like the $500 million crypto-focused fund being planned by Mike Novogratz means that banks risk falling behind their competitors if they hesitate.

Already, there are 75 funds investing in the space, according to Autonomous Research.

And that number will likely rise after the Chicago Board Options Exchange introduces bitcoin futures and options, which it says it’s planning on doing some time next year, making it easier for traditional investors to gain exposure to bitcoin.

Other potential applications for bitcoin that are being considered by banks include derivatives contracts and using the digital currency for trade finance, Bloomberg reported. For regulators considering how to move forward, Switzerland created a precedent over the summer when it granted a license to Falcon Bank to transact in bitcoin on behalf of its wealth-management clients.

However, while an endorsement by the banks would help cement bitcoin’s reputation as a legitimate asset, it could also bring changes as regulators demand more transparency. After all, the lack of transparency and the difficulty enforcing financial laws were both cited by the SEC as reasons for the rejecting two proposed bitcoin ETFs back in March.

Assuming US regulators assent to allowing banks to deal in bitcoin, the fundamental question then becomes: Will the banks change bitcoin? Or will bitcoin change the banks?

Comments

Mementoil Gazooks Fri, 10/06/2017 - 06:18 Permalink

Technically speaking, Bitcoin is still in a precarious position.It has broken down from a rising wedge formation, and right now it is retesting it from below.If it fails to break through it will drop significantly.And all this is happening in the broader context of a H&S top that has not been resolved yet.As I said before, BTC needs to exceed 5000$ in order to insure another leg up.And if it doesn't do that soon - it's toast!

In reply to by Gazooks

ZorroHedge Gazooks Fri, 10/06/2017 - 08:36 Permalink

Lol. What are you investing in ? Everything you own is controlled by them even the food you eat. You are still not aware that gold is also in their control ? Check on youtube for an interview about Bitcoin from Jamie Dimon in 2015. His hatred and violence against Bitcoin was so big that he almost summoned the Devil.

In reply to by Gazooks

ZorroHedge crazytechnician Fri, 10/06/2017 - 08:34 Permalink

Of course they missed out. More than 1000 % on Bitcoin, more than 4000 % on Ethereum, more than 3000 % on Ripple, ... The top 10 coins have gone parabolic already. Sure, they can still go up more but the first 1000s % of gains they missed. They were too busy bashing Bitcoin and saying that only gold and silver are real money. Repeating every day the same stupid shit of why Bitcoin is crap. And many still didn't learn their lesson. They keep holding on to their stupidity until the day the crypto bubble pops so they can say: "I told you so.". That's what they are waiting for. Just admitting that they were wrong is too difficult for them. Their ego is too big. They prefer to buy even more depreciating gold and silver and ignore the only asset class that keeps bankers awake at night. Human stupidity has no limits.

In reply to by crazytechnician

Juliette Yellow_Snow Fri, 10/06/2017 - 08:21 Permalink

There are already ETNs on Bitcoin which can be traded with a regular US stock account. You don't have to be a client of an expensive Swiss private bank to do it. What is an ETN? Exchange Traded Notes (ETN) are basically the same thing as an ETF (Exchange Traded Fund), just less regulated, but you don't need to care about that. The only thing that is important is that their price always mirrors the price of Bitcoin 1:1 ... I already bought some, execution is instant, liquidity is high, no problems buying or selling anytime. They are traded only on 5 days of the week, however, and price is adjusted prior to the opening of the session on Monday (at the NASDAQ OMX Nordic Exchange in Stockholm, Sweden). ETN name: Bitcoin Tracker One XBT Provider ISIN: SE0007126024 Link - http://www.nasdaqomxnordic.com/etp/etn/etninfo?Instrument=SSE109538

In reply to by Yellow_Snow

Greenspazm Fri, 10/06/2017 - 04:31 Permalink

Buttcon is not and never was a coin, in spite of the fraudulent advertising representations as golden discs. Buttcon will remain a valueless collection of digital nothings until backed either by tangible assets or government force.Ask "Sastoshi Nakamoto", author of that famous white paper published on Halloween 2008 (if you can find his/her/its/their e-mail address and phone number, that is).

DjangoCat Greenspazm Fri, 10/06/2017 - 11:58 Permalink

"Buttcon will remain a valueless collection of digital nothings until backed either by tangible assets or government force...."Backing with tangible assets is an invitation to fraud.  Is the gold in Fort Knox?  Why no public audit? Does fractional reserve banking encourage backing with tangible assets, or its opposite?How about Tether, a crypto supposedly backed by USD reserves?  How did its market cap climb by several hundred million after the banks closed off deposits into their fund?Now, government force is a different story.  I prefer to live where the force is weak.  I feel sorry for you if you think that force is an appropriate solution.

In reply to by Greenspazm

buzzsaw99 Fri, 10/06/2017 - 04:41 Permalink

a tool used by criminals? srsly?  how many crimes have jpm & gs committed?  i guess they hate competition.  earth to bankers, the reason crypto is so popular is because they are trying to get away FROM YOU.