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How banks are embracing crypto after trying to kill it for so long

The banking industry is racing to catch up and banks want to compete in this new world and profit

By Emily Flitter
Published: Nov 2, 2021

How banks are embracing crypto after trying to kill it for so long Bank of America’s CEO, Brian Moynihan, barred the giant company’s wealth managers from putting any client money into cryptocurrency-related investments.

In 2014, as regulators in New York were exploring ways to control Bitcoin, executives at Wall Street’s biggest banks fretted that regulating cryptocurrencies would also legitimize them — and that could threaten the finance industry. So they tried to sow doubt.

At the World Economic Forum in Davos, Switzerland, that year, Jamie Dimon, the CEO of JPMorgan Chase, the nation’s largest bank, 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 preeminent lawyer, warned the state’s regulators that the federal government was “very worried” about Bitcoin and its use.

Those efforts failed. New York’s Department of Financial Services began issuing licenses for Bitcoin businesses in 2015. There are now more than 75 million users of Bitcoin, up from around 3 million seven years ago, and the number of digital currencies has exploded. Globally, 220 million people use cryptocurrencies, according to a July report by

“Most people agree that in the future — it might be 10 or 20 or years or it might be sooner — effectively all assets are going to be in a digital format,” said Thomas Olsen, a partner at Bain & Co. who advises financial firms on cryptocurrencies and other digital asset matters.

Now the banking industry is racing to catch up. Banks want to compete in this new world and profit. Their approach is two-pronged: experimenting with cryptocurrency offerings and lobbying regulators to create rules that work in the banks’ favor. Some are offering cryptocurrency investments to wealthy clients. Others are weighing trading desks for Bitcoin. JPMorgan started its own digital currency in 2019. And instead of warning regulators away from cryptocurrencies, banking industry representatives now complain that regulators have not acted quickly enough and that their inaction is costing banks valuable time in their mission to compete.

But their initial skepticism has also cost them time. An alternative financial world is springing up around the traditional banking industry. Cryptocurrency startups are beginning to offer credit cards and loans. People and businesses around the world are embracing digital currencies at a rapid pace. Even governments are getting involved. El Salvador recently said it would accept Bitcoin as legal tender. And the Federal Reserve, following in the footsteps of central banks around the world, is evaluating launching its own digital currency.

Outwardly, top executives at the biggest U.S. banks have shown little enthusiasm for digital currencies. Dimon continued to be skeptical, calling Bitcoin a “fraud” in 2017. More recently, he declared it “worthless.” And three years ago, Bank of America’s CEO, Brian Moynihan, barred the giant company’s wealth managers from putting any client money into cryptocurrency-related investments.

But some individual bankers were getting curious. After years privately ridiculing Bitcoin, Thomas Montag, Bank of America’s COO, asked a friend for a tutorial on cryptocurrencies and spent hours listening to lectures, reading books and meeting with executives from cryptocurrency businesses, according to a person familiar with the discussions who spoke on the condition of anonymity.

Last year, engineers at Bank of America filed the biggest number of patent applications in the bank’s history, including hundreds involving digital payments technologies. It is unclear how exactly the bank plans to use its technology, but it was partly driven by the desire to keep customers within the bank’s systems rather than lose them to scrappy cryptocurrency startups.

“The bank sees potential in blockchain, and we’re currently a leading patentholder in the space with more than 160 patents,” a Bank of America spokesperson, 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 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 hold Bitcoin. U.S. Bank announced that it would offer cryptocurrency custody services to money managers.

In 2019, a unit of JPMorgan called Onyx introduced JPM Coin, a digital currency backed by the dollar that ran on Quorum, an internal technology that mimicked the structure of blockchain. But the bank controlled Quorum, unlike Bitcoin’s blockchain, which is decentralized. It recently spun off Quorum to a software startup.

Soon after JPM Coin went live, regulators began calling, said a person familiar with the matter who was not authorized to speak publicly. They worried that the movement of the coins around the financial system could cause a buildup of risk because they were tied to the dollar, sparking a panic and leading to the 21st-century version of a bank run. The bank had to cut back on the scope of JPM Coin’s use.

Now, JPM Coin cannot be used to transfer value outside JPMorgan’s internal systems. Bank customers can use it to move dollars and other assets back and forth inside the bank almost instantly, but it is meaningless in the wider world.

Regulators, who were caught off-guard by the rapid adoption of cryptocurrencies, are scrambling to write new rules governing their use. And banks see a fresh opportunity to lobby regulators on writing rules in a way that benefits them. Bank lobbyists are pushing regulators hard for uniform rules around cryptocurrency-focused lenders and other companies that transfer money and offer services similar to banking, arguing that unless they are subjected to the same controls banks face, the newer businesses will enjoy an unfair advantage.

American banks are also taking a stand against the Federal Reserve’s exploration of its own digital currency. The American Bankers Association, which represents the largest U.S. banks, warned members of the House Financial Services Committee this summer that the negative consequences of creating a central bank digital currency “could be severe.” The association said there did not seem to be a pressing need for one because “the dollar is largely digital today.”

Cohen, senior chairman of the law firm Sullivan & Cromwell, who years earlier warned New York regulators off Bitcoin, is among those pushing for greater regulation.

“We need a regulatory approach to cryptocurrency,” Cohen said in an interview with Bloomberg Television last month. Creating new rules would be “very difficult,” he said, “but that really should be a prod rather than an excuse.”

This article originally appeared in The New York Times.

©2019 New York Times News Service