How are banks using Bitcoin in 2018? The answer is complicated. As governments double down on their efforts to regulate Bitcoin, banks are caught in the cross hairs. Increasing demand presents a lucrative opportunity for banks to work with Bitcoin business, support initial coin offerings (ICOs), and innovate using blockchain technology. An uncertain compliance landscape, however, is holding back many financial institutions.
The relationship between the central banking system and Bitcoin is confusing and often misinterpreted. If Bitcoin was truly used as a currency, then it would make more sense for the central banking system to regulate it as such. This is because currencies traditionally fall under the purview of the banking system.
Bitcoin, however, is not exactly used in the typical manner of currency. Only a small fraction of Bitcoin transactions involve exchange of coins for retail goods and it behaves more like a ledger system than a currency. The innovations of blockchain technology and the cryptocurrencies that use it are a more likely substitute for corporations and legal systems than they are for currencies.
Given the nature of Bitcoin, it doesn’t make sense for the central banking system to actively regulate and control the cryptocurrency. Furthermore, the rapid evolution of Bitcoin and its contemporaries are showing us time and time again that the future is yet to be determined.
As Bitcoin becomes increasingly mainstream and more Bitcoin-related businesses pop up, we will see the fluid industry begin to solidify. Since cryptocurrencies do not pose a systematic risk for national economies, it’s best to let the digital currency market work itself out rather than intervene at this early date.
In the United States and United Kingdom, banks are banning the use of credit cards to purchase Bitcoin and other cryptocurrencies Chase, Bank of America and Citigroup in the US and Lloyds in the UK are some of the banks partaking in the ban. They cite concerns over debt defaults, fraud, and money laundering as the reasons for their recent bans.
In Canada, Harvest Portfolios just received approval to issue Canada’s first Blockchain-based Exchange Traded Fund (ETF). The fund , known by its stock ticker monikker HBLK, focuses on small and large Bitcoin corporations and is now trading on the Toronto Stock Exchange. This fund complements their already established Harvest Blockchain Technologies Index, which tracks performance of Blockchain segments.
As you can see, the financial sector is grappling with how to use Bitcoin and digital currencies in general. Countries around the world are approaching cryptocurrency banking in different ways. Only time will tell how banks choose to embrace Bitcoin.
Even though it doesn’t necessarily make sense for regulators to regulate Bitcoin, they are doing so with increasing fervor. In early February, Christopher Giancarlo, chairman of the Commodity Futures Trading Commission (CFTC), and Jay Clayton, chairman of the Securities and Exchange Commission (SEC), testified to the Senate Banking Committee that a rationalized federal framework needs to replace the current patchwork of rules regarding Bitcoin.
The hearing focused on how the SEC and CFTC can oversee cryptocurrency exchanges, how to protect investors from volatility and fraud, and how to mitigate the risks of cyber criminals, especially when it comes to stealing virtual currency. They cited growing global concerns about the risk of financial crime associated with Bitcoin.
In the United States, select states are regulating Bitcoin: New York, California, Alabama, Connecticut, New Hampshire, North Carolina and Washington. California only recently jumped into the mix with the introduction of the Virtual Currency Act (A.B. 1123). The new Virtual Currency Act would require anyone involved in a “virtual currency business” in CA to first register with the state’s Commissioner of Business Oversight. In this context, a “virtual currency business” is defined as a business “maintaining full custody or control of virtual currency in this state on behalf of others.” The licensing requirement seems to primarily target cryptocurrency exchanges or wallets based on its wording.
In the United Kingdom, Teresa May is putting pressure on regulators to take a closer look at cryptocurrencies. May is recommending that cryptocurrencies comply with 2018 anti-money laundering (AML) requirements, which would require removing the anonymity that the platforms provide.
Amidst regulatory change, it’s increasingly difficult to nail down a Bitcoin-friendly bank. While you wait to see how banks use Bitcoin, how regulators shape future laws, and how consumers react, you can take steps to secure a reliable Bitcoin bank account that will weather the storm. BankLine formed to help Bitcoin-related businesses secure real business bank accounts using a network of financial partners. The network provides redundancy, ensuring that you are covered even if one bank decides to derisk.
BankLine’s team is comprised of compliance experts and people with experience in the Bitcoin industry. Clients enjoy 24/7 access to customer service partners who ensure your business is operating efficiently. When regulations change, BankLine helps you comply ahead of the deadline and keep your Bitcoin kiosk in operation.
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As Bitcoin takes the financial sector by storm, it’s important to set your business up for scalable success. Access to trustworthy Bitcoin-friendly banking partners and Bitcoin cash logistics solves two of the most complicated and critical issues facing Bitcoin-related businesses today. If you are ready to experience the peace of mind that comes with reliable Bitcoin banking, apply to open an account today.