|
Are banks and Bitcoin firms at the start of a beautiful friendship? |
Bitcoin and banking need each other. So why can't the two get along? Since their creation, Bitcoin and other virtual currencies have lived in a murky world, with their anonymity and separation from official government bodies raising concerns. That has allowed the technology to capitalise on the best of the market, creating new ways to process payments, and transfer and exchange funds. Over this same period, the banking industry has faced greater regulation and political scrutiny. New requirements are adding to the sector's costs and processing times, cutting into traditional profit centres. A partnership between virtual currency firms and traditional financial institutions could benefit both their business and customers.
Regulatory uncertainty is one reason this marriage has yet to form. Authorities around the world have indicated a desire to create or strengthen the regulation of virtual currencies. But very few have been clear about what those regulations might be or how they will be enforced. The uncertainty and volatility compounded by a number of well publicised arrests and criminal investigations has not helped virtual currencies' reputation or endeared it to the mainstream finance industry.
Whatever Bitcoin's flaws, its technological innovation offers the old banking system a fresh way to connect with consumers and other banks. A study by Promontory suggests that the cost of transferring funds with virtual currency is substantially lower than through banks' existing systems. Struggling under the cost and weight of new regulation and capital requirements, banks are going to need to find innovative approaches to some of their most basic functions, as well as adopting new ones.
Bitcoin will benefit from the legitimacy and compliance regimes that banks already have in place. Some regulators and many law enforcement agencies in the US and other western countries have stressed that today's laws and regulations including those addressing anti-fraud, money laundering and money transfer registration are – for the time being – sufficient to cover the burgeoning industry. Many Bitcoin firms, however, lack the resources or knowledge to comply with these requirements. Banks' in-house compliance capabilities could be an asset, helping these firms understand their liabilities and expand into new markets.
There are other benefactors, too. Governments would be able capitalise on these partnerships, as it would put virtual currency operations in a form that is easier to regulate. The lower costs and higher regulatory security would ultimately be a benefit passed on to consumers, improving the overall health of the market.