Data Dive

The Anything is Possible Edition: Pot, Bitcoin And Bank Branch Closing

On Friday, the Olympics kicked off in Pyeongchang – and the world got a chance to see there is no such thing as impossible.

Lots of impossible things happened on Friday.

The headline, of course, was the unified Korean team entering the stadium under a single jointly held flag, under the gaze of North Korean leader Kim Jong-un’s sister, Kim Yo-jong. Seemed impossible.

Then there’s the fact that both Nigeria and Jamaica have women’s bobsled teams competing – despite the fact that the combined average snowfall of both nations is approximately zero inches. That fact stopped neither team from marching proudly into the Olympic arena Friday night, ready to go for the gold.

But not nearly as proudly as this guy: Tongan flag bearer, cross-country skier and national hero Pita Taufatofua. He stripped down to a traditional Tongan grass skirt and chest oil to represent his nation as its single Olympic competitor.

And if you are wondering if you have seen that glistening chest before – they answer is yes, yes you have.

At the Rio Summer games two years ago, to be exact, when Taufatofua was once again one of the only Tongans competing in the Olympics in Taekwondo on behalf of his nation.

Taufatofua realized that his nation needed him once again – so he learned to cross country ski in about three months and then qualified  for the Olympics.

Whether he wins gold (he won’t: Scandinavians have won every cross country gold medal for the last several decades because it snows there, and never snows in Tonga) or goes home empty-handed, he’s already won this Olympics.

But while the drama, pageantry and sex appeal may have been in Pyeongchang, there was plenty of impossibility on display in the payments and commerce ecosystem, though admittedly less oiled, visible pecs.

The Treasury Department found itself in the unprecedented position of arguing for pot, bitcoin got on everyone’s bad side all at once and now can’t seem to find its way north of $10,000, and rural banks are going up in smoke, despite the rural customers who would really like to use them.

The Treasury Department Says Yes To Pot  

Okay, that headline might be a little unfair – we are sure the Department of the Treasury is not pro-pot. However, the Treasury Department is perhaps unsurprising highly pro-banking, and if the people of over 30 U.S. states are going to be selling marijuana in stores, the Department of the Treasury would really like them to use banks for their proceeds.

“I assure you that we don’t want bags of cash,” U.S. Secretary of the Treasury Steven Mnuchin testified during an appearance before the House Financial Services Committee, according to Forbes. “We want to make sure that we can collect our necessary taxes and other things.”

The answer came as Mnuchin was answering questions from lawmakers who were worried about the public safety implications of banning banks from doing business with marijuana companies due to the fact that cannabis is illegal on the federal level.

Mnuchin also noted that the Treasury is currently looking for a fix.

The move from the Treasury comes a few weeks after U.S. Attorney General Jeff Sessions officially moved to walk back the Cole memo, which was the Obama administration’s official policy of looking the other way on the subject. The banking guidelines were built around the Cole memo guidelines.

Mnuchin confirmed the Treasury is reviewing the existing guidance, but said he doesn’t want to throw out those guidelines until there isn’t an alternative policy to address public safety concerns.

Bye-Bye, Bitcoin Boom

December was a good time to laugh at bitcoin naysayers. Every time someone said “it’s a bubble,” it seemed the price doubled. By early January, even Jamie Dimon said he was sorry for calling it a “fraud” in 2017.

But hey, it was, as we noted, a good week for impossible things.

Bitcoin’s price as of the writing of this article was at $8,245 per unit – about $11,000 less than its December peak. And that great drop in value makes some sense, insofar as it feels like bitcoin in specific and crypto in general has been everyone’s favorite piñata for the last few weeks.

The big banks took the first swing.

Citigroup, Bank of America and JPMorgan Chase have all now officially announced they will no longer allow customers to purchase bitcoin with their credit cards. According to The Wall Street Journal, banks are growing more worried that credit-based bitcoin purchases will result in more card losses and fraud losses. The big banks joined a growing list – Capital One has had the kibosh on using credit cards for bitcoin buys since January, while Discover Financial banned it back in 2015, and Barclays is expected to follow suit.

China jumped in the next day, with the announcement it had blocked foreign platforms that enable bitcoin trading in its effort to kill the cryptocurrency market in China altogether. It is not yet known what types of policies China will implement to hinder access to these platforms.

And then, rounding out the week, two different branches of the U.S. Federal Reserve noted that bitcoin – and cryptocurrency – are a lot of hype, without any real potential.

According to New York Fed economists Michael Lee and Antoine Martin, bitcoin and the like do all-right in an environment where there is low or no trust, but in an environment where trust exists, it’s not really very useful.

Its price is highly volatile, because people invest/speculate in it. That means it just fundamentally can’t fulfill one of the main functions of currency, which is to act as a store of value.

“In a world where all things were priced in bitcoin, this would likely translate into massive swings in inflation and economic activity,” they said.

They also noted bitcoin is wasteful of energy, since it needs so much power to mine, and inferior to the payments products already on offer in the environment. The bitcoin network is restricted to a sustained rate of processing seven transactions per second, due to the bitcoin protocol restricting block sizes to 1MB. Bitcoin cash, with its 8 MB block size, vastly speeds things up to 61 transactions per second. VisaNet, by comparison, can handle 56,000 transactions per second at peak capacity.

“The idea that these virtual currencies are ever going to compete with the dollar is hard to fathom,” said Minneapolis Fed President Neel Kashkari. “If you live in any modern advanced economy, I would stick with the dollar, I would stick with the yen and leave bitcoin for the, you know, toy collectors.”

Burn.

And finally…

Banks Bail on the Countryside

Between June 2016 and June 2017, a total of 1,700 branches closed.

And it is expected that the 12 months between June 2017 and June 2018 will see even more closures. If that happens, the last 24 months will soon vie with the Great Depression for the breadth of branch closures in a similar space in time.

But it’s not just that the banks are closing – it is also where: In rural areas, banks are just packing up and leaving town.

Big bank cuts – from the likes of BoA and Chase, for example – became de rigueur in the post-financial crisis world. Regional banks, however, have only leveled up their closures in more recent memory.

“We continue to evolve and optimize our branch network to ensure that we’re operating as efficiently and effectively as possible,” a Capital One spokeswoman said.

Bank of America, on the other hand, has actually  expanded the number of branches in big cities, ditto with JPMC – but the opening of new branches doesn’t make up for the masses that are closing outside of those urban areas.

And unlike urban and suburban banks – which are generally being closed for being in too close proximity to other branches – the rural ones aren’t closing because they are redundant, but because they are money losers.

“Limited usage is one of many criteria we look at when making the difficult, but necessary decision to close a branch,” Pittsburgh-based PNC Financial Services said. “Other criteria include community needs and the closest nearby branch.” 

So, what did we learn this week?

We learned that nothing is impossible – sometimes treasury officials have to come up with better ways to deal with pot profits, even bitcoin can fall (no matter what its cheerleaders say) and, as it turns out, there is a worse time in history to be a bank branch than during the Great Depression.

And we also learned that a Tongan with a dream, roller skis and body oil can inspire a planet to be the best they can be.

Have a good week.

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