Big banks getting interested - just posted on Marketwatch

Many major Wall Street banks are trying to understand bitcoin, the virtual currency that has gained interest in the last few years, and how it could change the global payment system, say industry experts.

BloombergA twenty-five bitcoin
“What we have learned is that many of the banks have individuals and teams now focused on getting to know bitcoin and how it impacts the business,” said Barry Silbert, founder and CEO of SecondMarket, which is working on creating a U.S.-based bitcoin exchange and is an investor in Bitcoin companies.

Silbert was speaking at a panel discussion at the MarketWatch Investing Insights event “Bitcoin: Boom and Bust” late Tuesday in New York.

Banks are trying to understand what a digital-currency world looks like from an infrastructure perspective, said Silbert.

Bitcoin is a decentralized virtual currency that has been trumpeted as a faster and cheaper alternative to existing payments systems and has attracted the interest of high-profile venture capitalists. Some even say it has the potential to be a widely used currency. But it isn’t regulated and a prominent bitcoin exchange shut down last month after hackers stole all its customers’ bitcoins, leaving users with little recourse and raising concerns about security.

On Friday, Japan’s government said bitcoin isn’t a currency or a financial product and will be treated like other goods and services. Prices of bitcoin, meanwhile, have swung from $13 in early 2013 to above $1,000 in November and back down to around $625 on Friday.

So far, Bank of America Corp. BAC -0.12% , J.P. Morgan Chase & Co. JPM -0.52% , Citigroup Inc. C -0.79% , Goldman Sachs Group Inc. GS -0.91% and Wells Fargo & Co. WFC -0.04% have published reports on bitcoin for clients. Morgan Stanley has not.

J.P. Morgan analyst John Normand writes: “For corporates, bitcoin’s appeal is two-fold: no or low transaction costs from a peer-to-peer payments system, and potential brand recognition from trialing an innovative technology.”

Bank of America analysts say bitcoin may emerge as a serious competitor to traditional money-transfer providers. “As a medium of exchange, Bitcoin has clear potential for growth, in our view,” they add.

Wells Fargo hosted a panel on virtual currency in January that looked at bitcoin’s viability, compliance and future. Goldman Sachs included a panel on digital currency as part of a global macro conference on Thursday.
“If payments or transactions can be done cheaper, there is an incentive for entrepreneurs and financial firms to get involved,” said Steven Englander, Citigroup’s global head of G10 FX strategy.

Financial firms have showed interest in key areas such as whether bitcoin is an investment opportunity, a commodity to be traded or a currency to be converted for clients.

A number of commodities and currency traders are digging into bitcoin and using their own money to to trade bitcoin, noted Silbert. And banks are also interested in the virtual currency, as exchanges are being to formed, to provide potential services to clients such as converting bitcoin into other currencies.

“Bitcoin’s primary attraction, in my view, is that it is a way to transfer funds instantaneously and cheaply with a pretty secure system,” said Englander.

Several high-profile business leaders have showed interest in bitcoin in recent months, including former Treasury Secretary Larry Summers, Nobel laureate economist Robert Shiller, Microsoft founder Bill Gates, former vice president Al Gore and venture capitalist Marc Andreessen, note industry enthusiasts, which is encouraging for the industry.

These are the early stages for banks getting involved in bitcoin, and the industry as a whole is hesitant in getting involved before regulators weigh in, says Silbert, the Secondmarket founder.

“Banks are waiting for clearer guidance at the federal level on how businesses are having interactions with bitcoin and there is still some questions on the state level,” he added.