Will This be Year Crypto Gets Mention in Banks’ 10-Ks?

In the last couple of quarters, major banks haven’t had much to say about cryptocurrencies in their earnings reports or the subsequent analysts’ calls.

Q2 2022 could be the quarter that changes that.

With major banks’ earning season kicking off this week as JPMorgan Chase and Morgan Stanley report on Thursday (July 14) and Citigroup and Wells Fargo on Friday (July 15), it would seem like they have plenty of other things to talk about: The Federal Reserve is so worried about inflation that it is already talking about a second 75-basis-point interest rate hike despite growing signs of recession and Russia’s expanding war in Ukraine is causing uncertainty and political tensions to mount.

Then there’s the crypto market’s fall became a landslide in May, after a poorly designed stablecoin collapsed, taking $48 billion worth of investors’ funds and a fair bit of crypto confidence with it.

Later that month, at the crypto-friendly World Economic Forum’s annual Davos meeting, Bank of America CEO Brian Moynihan told Yahoo Finance that he feels the bank is “not missing [out] on anything” by staying out of crypto, adding, “we are driving payments through the roof.”

But, he also suggested that Bank of America’s sidelining of crypto was not by choice.

“The reality is that we can’t do it,” Moynahan said. “By regulation, we are not really allowed to engage. We are not engaging in accounts for people in cryptocurrency, we are not allowed to.”

Pointing to the Office of the Comptroller of the Currency’s position on banks engaging with digital assets, Moynahan described the bank regulator’s position: “’You have to ask us before you do it and by the way don’t ask’ is basically their tone.”

This is not very different from what Capital One CEO Rich Fairbank said in his Q4 2021 earnings call on Jan 25.

Asked about growing moves in the previous few quarters that targeted products offered by FinTechs and neobanks, Fairbank pointed to the speed with which those firms are able to move, saying that because “the FinTechs are also unregulated … ways that they move and operate that wouldn’t be consistent with the banking side of the business”

Pointing to “the regulation that has tended to surround the banking space,” he noted that “the biggest growth vectors have been sort of in the least regulated side of things, you know, in payments and platforms and crypto.”

Interest Growing

On June 30, Bloomberg reported that the number of Bank of America customers using crypto shrank by 50% to 500,000 since the beginning of November — when bitcoin was leading the broader crypto market to its all-time-high, before collapsing at the end of the month. At $20,000, bitcoin’s value is now down about 70%.

Yet, just two days earlier, the bank issued a report following its “Web3 & Digital Assets Day” conference, saying that “client engagement continues to grow and focus remains on the rapid development and disruptive nature of blockchain technology, despite falling token prices and headlines suggesting the ecosystem’s demise has arrived,” Coindesk reported. In mid-June, BoA said it found 90% of crypto investors plan to buy more crypto within six months.

Bank of America said there was a consensus that institutional investors were interested in entering the space, but were waiting for regulations to be written.

See also: Senate Crypto Bill Debuts, and Crypto Industry Gets Big Wins

That’s happening. Aside from a recently introduced bipartisan bill to regulate crypto assets by Sen. Cynthia Lummis (R-Wyo.) and Sen. Kirsten Gillibrand (D-N.Y.), the U.S. Treasury Department issued an update on its efforts to write comprehensive regulations in response to President Joe Biden’s executive order, which requires a plan by September.

See more: US Treasury Sets out International Cooperation Plan to Rein in Digital Assets

And at the beginning of Q2, Umar Farooq, the CEO of JPMorgan Chase’s Onyx by JPMorgan blockchain division, said that its JPM Coin digital currency is already being used to send payments around the world.

While banks may take longer than FinTechs to launch products, he said, they launch with “a scale that a FinTech can only dream of,” CNBC reported. “There aren’t many places where you can roll out a new platform and that platform can go from literally nothing to transacting a billion dollars of trade a day in a few months.”

There are other signs that banks are readying for crypto. Citibank in June selected a Swiss firm to provide custody services for its digital assets.

Noting that it, like Goldman Sachs and JPMorgan, already offer clients bitcoin futures trading, Coindesk said Okan Pekin, Citibank’s global head of securities services, told it “we are witnessing the increasing digitization of traditional investment assets along with new native digital assets,” adding that the banking giant is “innovating and developing new capabilities to support digital asset classes that are becoming increasingly relevant.”

And banks are seeing top talent increasingly unwilling to wait for the banks to get into crypto.

In April, Alex Kriete and Greg Girasole, co-heads of digital assets at Citi, departed to start a crypto investment firm, Motus Capital Management, Blockworks said.

All of which suggests that this would be a good time for banks to talk about ways they see cryptocurrencies impacting their bottom lines in the near future.

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