Does Bitcoin Have a Place in Banking?

How do bankers really feel about bitcoin? It seems financial institutions are viewing the world’s most famous cryptocurrency both as a potential threat and a potential opportunity.

As bitcoin gets more popular, banks are becoming compelled to pay attention — not just to bitcoin, but to other digital currencies as well, including liteCoin, dogecoin, and the new ethereum.

The head of Wells Fargo’s global financial crimes intelligence, Lester Joseph, noted at yesterday’s Digital Currencies 2014 conference that Wells Fargo does not have a separate division studying digital currencies, but the bank has been discussing the topic. “There’s a tremendous business opportunity to bank virtual currency companies and loan money to these companies… they are a potential competitor so we need to understand it.”

Of course, banks aren’t banking bitcoin companies yet. Joseph explained, saying “The reason we aren’t banking bitcoin businesses [is the] very tough regulatory climate, and a lot of pressure to reduce risk, and we’re just not fully comfortable in the space.” Stories of cryptocurrency-friendly businesses having their bank accounts shut down are an everyday occurrence.

Joseph may have been lukewarm about digital currencies, but Jordan Modell of Internet Archive Federal Credit Union said that he was trying to be the first financial institution to bank a bitcoin company. The IAFCU has attempted to work with a bitcoin company before, but was shut down by their regulators, who were not opposed to the idea, but did not trust that the credit union’s infrastructure could handle the risk.

Modell also noted that bitcoin is digital cash, but unlike actual cash, has identifying features that that helped law enforcement officials take down Silk Road. Modell said that he thought the best bitcoin strategy for banks would be to “keep track just to see where its going and see what your stance will be — fight them, join them, or get crushed by them.”

Joseph stated that Wells Fargo doesn’t “really have a strategy” regarding bitcoins, and that a bank’s priority right now isn’t bitcoin but other things. “Revenue is a key concern. How do I do more with less than I have today? We also focus on rationalizing infrastructure, regulatory issues, and mobile banking. Things that sound boring, but they’re the bread and butter of trying to run a business.”

Attendees at the conference ranged from an employee of the Consumer Financial Protection Bureau, as well as people from Massachusetts Division of Banks, Silicon Valley Bank, Swift, Chase, Discover, Visa, BBVA, and a large number of representatives from Bitcoin startups.

Bitcoin purists at the event heavily criticized the NYDFS’ BitLicense resolution, hinting that banks were helping the Department of Financial Services in drafting the resolution, which, they said, explains why it was so broad and harsh. Bank Innovation has reached out to the NYDFS for clarification.

It seems like the general consensus among bankers is that bitcoin is an interesting, and potentially very lucrative, passion project. The technology is still new and has not penetrated to the mainstream yet, with a total market capitalization for bitcoins of only $8 billion. But, the potential to upend many different areas of banking means that you can be sure that bankers will be monitoring the digital currency very closely.