If you haven’t known it by now, let me just state the obvious: the cryptocurrency market has gone mainstream. Obviously, the biggest news item is bitcoin. After blowing past the psychological resistance barrier of $20,000, it then went on to breach $30,000, then $40,000. In theory, this should help bank stocks as their underlying companies can potentially corral this excitement into another revenue channel.
Unfortunately, that’s not how things work around here. For one thing, bank stocks — at least, the major ones — are typically steeped in history and tradition. For instance, the heritage of many companies can be traced well back into the 19th century. And that’s just for American banks. You can probably figure out that the cryptocurrency concept is anything but traditional. It’s really a revolution of the financial and investment paradigm.
Of course, this segues into the next reason why banks stocks and virtual currencies don’t always mix. A cryptocurrency is not just an alternative to the hegemonic global financial structure but a competitor. Let’s be real — most people who deal with cryptos are doing so to make money. Well, many banking institutions have their own investment businesses, which aren’t nearly as sexy as the blockchain markets.
Furthermore, bank stocks represent in many ways the frontline of monetary policy. Right now, the emphasis of both monetary and fiscal policymakers is to stimulate the economy. If you look at metrics like the personal saving rate and especially money velocity, stimulus is the last thing we have. Instead, we’re bucking under the weight of deflation. People speculating their money on whatever cryptocurrency is popular these days hardly helps matters.
That’s a major problem because value is now being transferred digitally — and without a leaching intermediary. Well, there are intermediaries, but they’re often not the big banks. Therefore, bank stocks are not necessarily aligned with the rise of the cryptocurrency. Here are a few examples of companies that either ban or limit bitcoin or other blockchain token purchases.
- Bank of America (NYSE:BAC)
- JPMorgan Chase (NYSE:JPM)
- Citigroup (NYSE:C)
- Lloyds Banking (NYSE:LYG)
- Commonwealth Bank of Australia (OTCMKTS:CMWAY)
- Royal Bank of Canada (NYSE:RY)
- PNC (NYSE:PNC)
- Wells Fargo (NYSE:WFC)
- Discover Financial Services (NYSE:DFS)
To be clear, not all banks are anti-bitcoin. And we should be fair to those who criticize the cryptocurrency complex: it’s a wild west market. Plus, you have high-profile cases such as the Securities and Exchange Commission’s lawsuit against Ripple Labs, the folks responsible for ripple. I get the hesitation, which is why these bank stocks are not quite crypto-friendly yet.
Bank of America (BAC)
Historically, Bank of America will go down as an early supporter of the cryptocurrency concept. Now that I think about it, supporter might be too strong of a word. But it certainly lent the idea of blockchain reward tokens substantial credibility. According to Forbes, BofA was the “first major finical institution to initiate analyst coverage” of bitcoin.
But before you go into your local Bank of America branch to inquire about bitcoin investing, you’ve got another thing coming, bud! According to Banks.com, BofA has a policy that “Bank-issued credit cards and lines of credit can no longer be used to buy bitcoin or any other altcoin.” However, “Depositors can still use their debit cards or bank transfers for purchases.”
Bank stocks must bank, I guess.
Naturally, this is a bummer. But it could also be that financial institutions are protecting themselves. The last thing they need is everyone using credit to pile into a speculative cryptocurrency asset. But on the other side, this move reeks of self-interest.
JPMorgan Chase (JPM)
When JPMorgan Chase CEO Jamie Dimon isn’t busy manipulating precious metals — sorry, that’s an old joke but some take it very seriously — he’s giving perplexing comments about bitcoin and the broader cryptocurrency market.
To clarify, JPMorgan issued a bold statement. From a CNBC report, JPM claims the “red-hot cryptocurrency could rally as high as $146,000 as it competes with gold as an ‘alternative’ currency. But, there’s a catch.”
Such a tremendous rally would imply that bitcoin’s market capitalization would reach somewhere in the neighborhood of $2.7 trillion. However, “its price volatility would need to drop substantially to give institutional investors the confidence required to make large bets.”
Perhaps that’s a way to make amends for the fact that Dimon once called BTC a fraud. Still, according to Banks.com, JPMorgan has the same policy regarding bank-issued credit cards and lines of credit for cryptocurrency purchases. So unfortunately, JPM is still one of the bank stocks that’s not in alignment with the virtual currency revolution.
Years ago, the idea of $100,000 bitcoin was incredibly far-fetched. To be fair, it still is a fantastical idea. Nevertheless, in late November 2017, I stated that “I genuinely would not be surprised if the virtual currency hit $100,000 a pop. The only grey area is the timing.”
Could that wildly outrageous target come true in 2021? That’s 2.5 times from where the BTC price stands today. On Nov. 28, the time of my above quote, it would have been roughly a ten-bagger. Therefore, we’ve made significant progress, so much so that this ridiculous notion is just on the cusp of fruition.
But if you think $100,000 is crazy, Citibank is looking at $318,000. Specifically, Thomas Fitzpatrick, global head of the company’s CitiFXTechnicals market insight product, believes this jaw-dropping threshold can be reached by December of this year!
At a certain point, you got to wonder if these lofty targets are becoming a tad bit irresponsible. But don’t worry, Citigroup has the same policy as the previous two big banks: no bitcoin for you!
Lloyds Banking (LYG)
It’s not just U.S.-based bank stocks that are impacted by skeptical or downright negative attitudes toward cryptocurrency investing. Nearly three years ago, The Guardian reported that Lloyds Banking “banned credit card customers from buying bitcoin amid fears it could be left in debt as the cryptocurrency’s value deflates.”
Further, the paper stated that “The banking giant, which includes Halifax, MBNA and Bank of Scotland, is thought to be the first in the UK to ban credit card customers from borrowing to buy the cyptocurrency, which has more than halved in value in recent months.”
Of course, the timing of this is interesting. That was when BTC was on the cusp of hitting $20,000, only to incur an implosion of the crypto bubble. But it does raise the question: was Lloyds willing to allow its customers to speculate on virtual currencies had they continued to go up, up and away?
We probably won’t get an answer to that. From the information provided by Banks.com, LYG remains one of the bank stocks that is not crypto-friendly.
Commonwealth Bank of Australia (CMWAY)
Australians are an adventurous bunch. I mean, you really have to be if you’re going to live in this “frontier” country. But when it comes to finances, the Land Down Under stays on the straight and narrow. At least, that’s the implication behind the Commonwealth Bank of Australia’s policy on cryptocurrency investing.
As I said, non-crypto-friendly bank stocks are not exclusively an American phenomenon and the Commonwealth Bank demonstrates this perfectly. Its policy prohibits virtual currency purchases via credit card. It should be noted, though, that the company allows its customers to purchase blockchain reward tokens through its transaction accounts and debit cards.
I get that the majors want to protect themselves against a mad rush of speculation that could go awry. However, it’s also possible — and I’m just spit-balling here — that these restrictions could ironically end up contributing to the speculation. Perhaps the wild swings in the bitcoin price artificially concocted pent-up demand.
Whatever the case, CMWAY is one of the bank stocks that want to stay in the analog paradigm for as long as possible.
Royal Bank of Canada (RY)
From recent news, it appears that Royal Bank of Canada could be one the bank stocks that truly gets it. Back in 2017, JPMorgan Chase stated that it would launch a new payment processing network utilizing blockchain technology. One of JPM’s partners in the project was Royal Bank of Canada.
Later, in 2019, there were rumors that it was going to launch a cryptocurrency exchange. However, a report from Coindesk.com squashed that speculation. A spokesperson clarified, stating, “While RBC does not comment on ongoing proprietary research and development, we can confirm that these patent filings are not in support of work towards a cryptocurrency exchange for clients.”
But what about now? From information provided by Banks.com, there apparently have been customers who have accused RBC of stopping bitcoin purchasing transactions. And a Reddit post claims that RBC has stopped allowing crypto-related purchases.
From what I can tell, the official policy is that the company is “reviewing” the matter. However, its history and anecdotal evidence suggest that RBC is one of the “anti-crypto” bank stocks.
According to Banks.com, PNC’s policy is to not associate with bitcoin and virtual currency ventures. That means discouraging or preventing its clients from engaging in crypto-related investments or businesses. While such a cautious take on an emerging asset class may seem draconian, I can also appreciate the hesitation.
Above, I mentioned the SEC lawsuit against Ripple Labs. To briefly summarize, the regulatory agency’s position is that Ripple was trying to subvert securities law by issuing XRP tokens to fund its business. Basically, this was an initial public offering without calling it such.
I don’t want to get into the legalities of it because it’s a complex issue, although if you want more detail, you can read my take on the matter. But the point as it relates to bank stocks is that these major institutions don’t want to absorb the risk because crypto-related controversies often have blowback that affects third parties negatively.
Judging from the rumor mill, it appears that PNC maintains its pessimistic posture against virtual currencies. Therefore, you’ll probably not find a friend here.
Wells Fargo (WFC)
When it comes to notorious bank stocks, Wells Fargo probably tops the list for most folks. It’s a darn shame because this institution used to be one of the most respected. But after the infamous account fraud scandal, Wells Fargo had its sterling reputation tarnished. As well, WFC stock has generally been a laggard relative to the competition.
However, the company shares the same skepticism toward bitcoin and other cryptocurrency assets like its brethren. In 2019, Wells Fargo placed a ban on customers purchasing blockchain reward tokens via debit cards.
Like the other bank stocks I discussed, I understand the reasoning. Cryptocurrencies are incredibly speculative. Yes, massive gains can be had, sometimes within hours of purchasing your coins. But severe, catastrophic losses can also occur — and that’s just talking about market volatility.
Nevertheless, it just rubs folks the wrong way that WFC won’t allow its adult customers to make adult choices with their money, but Wells is fine concocting fake customer accounts to boost sales results. Frankly, it’s not a good look.
Discover Financial Services (DFS)
I absolutely don’t recommend this course of action. But right now, we’re in a cheap money environment. Thus, for those that wish to speculate at scale, there is case to be made for buying cryptocurrencies on credit. Again, please hear me out — I do not recommend this. Anyways, for those thinking about such a reckless move, you’re not going to find a willing partner from Discover Financial Services.
Financial institutions are all about risk management. Plus, bank stocks have shareholders, obviously. They might frown upon virtual currency endeavors. But former Discover CEO David Nelms went a step further, telling Bloomberg in 2018:
“It’s crooks that are trying to get money out of China or wherever … Or if someone steals our credit card numbers they’re going to ask for payments in Bitcoin. Those are the only use cases I’m actually seeing today.”
Ouch! Admittedly, there’s more than an element of truth to Nelms’ statement. The negative side of cryptocurrencies have a truly dark edge that “analog” investors aren’t used to. And despite a change in leadership, I can’t find any indication that Discover has loosened up on its anti-crypto policies.
On the date of publication, Josh Enomoto held a long position in BTC, XRP and LYG stock.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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