Many want to know why banks don’t deal with cryptocurrency, and the answer is fairly simple–at least in the United States. Our article here deals specifically with why U.S. banks don’t deal with cryptocurrency and does NOT presume to address issues outside the USA.
Having said that, we WILL use certain foreign banks as examples by way of contrast, but our COMMENTARY is directed solely at the US. So why don’t banks want anything to do with Bitcoin, Ethereum, etc.?
Banks Don’t Deal With Cryptocurrency?
In the past, the answer has been a solid no. And for the same reasons our entire article is based upon. The basic definition of Bitcoin and other cryptocurrencies in America? It’s NOT legally defined as currency, but rather as property. Bitcoin and other cryptocurrency is taxable as property in America. The IRS does not define it as currency and furthermore, it is not REGULATED as currency.
Which is one limitation for a financial institution which must obey federal laws, observe federally-mandated money handling and processing regulations, etc. There is no deposit insurance for cryptocurrency and no protections for the investor. What’s more, cryptocurrency has no inherent value–you cannot eat it, you cannot physically trade it at will for goods or services like cash or an ATM card, etc.
The entire value of cryptocurrency is based on faith in it as an investment. The moment that faith or enthusiasm for Bitcoin dries up, values are subject to major corrections. The volatility of Bitcoin and the rest is one reason why financial advisors are extremely averse to cryptocurrency.
But what if banks could address the volatility issue and create a less-prone-to-crashes-and-corrections digital currency?
Some Banks DO Deal With Cryptocurrency
An article published by the American Express official site notes that JP Morgan has experimented with just such a concept. A trial run of something called JPM Coin is described by American Express as “a prototype new digital coin, for transferring international payments as cryptocurrency between its corporate customers”.
In the trial, one JPM Coin equaled one U.S. dollar. “When one bank customer sends money to another over the blockchain, JPM Coins are transferred and instantaneously redeemed for the equivalent amount in U.S. dollars, reducing the settlement time”
This approach to digital currency is a three-step process and involves–at least from the impression one gets from the AmEx article, some form of regulation or oversight from JP Morgan is involved and could be used to replace certain services such as wire transfers as the transactions can occur in something much closer to real-time.
At press time this is not in widespread use but the idea is catching on–In 2019 Mizuho Bank in Japan announced J-Coin Pay, a mobile payments platform based on a digital currency. This project was announced in partnership with some sixty other financial institutions and is an idea that will only get more attention in the coming years.