• The COO of Bank of America believes that cryptocurrency has the potential to add value to banks

  • Bank of America’s chief operating officer stated that certain characteristics of blockchain and crypto could add a lot of value to banks as the bank has begun to look more into the crypto space.

    “I believe some of the things that are happening today will provide that technological leap that allows banks to be more efficient, [have] less errors, and be more compliant,” Bank of America COO Tom Montag said about crypto at a Chainalysis event in New York City on Thursday. “So we’re looking forward to figuring out how to best use it and have it become a part of the system.”

    Last month, Bank of America unveiled its cryptocurrency research division, which is led by Alkesh Shah, the bank’s head of global cryptocurrency and digital asset strategy.

    In conjunction with the launch, the company published a report titled Digital Assets Primer: Only the First Inning. It states that as of June 2021, 221 million people had purchased or sold a cryptocurrency, up from 66 million in May 2020.

    “It’s difficult to overstate how transformative blockchain technology, digital assets, and the thousands of yet-to-be-created decentralized apps could potentially be,” the report says.

    Continue reading for some key takeaways from Montag’s most recent remarks.

    Lending against cryptocurrency assets is a possibility.

    When asked about crypto companies and protocols that offer loans against crypto assets by Chainalysis CEO Michael Gronager, Montag stated that “certain things probably need to happen” before Bank of America could enter that space.

    According to the COO, the bank currently lends against art, houses, boats, and even railroad cars. He stated that if the cryptocurrency market shows more stability and less volatility, the bank may consider it in the future.

    “People can lose a lot of money lending money against stocks, even in stocks… So you can see why people are concerned about what they’re lending against and how they’ll ensure they have it.”

    Stablecoins must demonstrate their stability.

    When asked about stablecoins, Montag cited Argentina’s failure to base their currency on the dollar.

    According to a 2002 economic research letter published by the Federal Reserve Bank of San Francisco, Argentina ended hyperinflation by pegging its exchange rate to the US dollar in 1991, reducing inflation rates to single-digit levels. It abandoned its dollar peg in January 2002. Following that, interest rates continued to rise, and the currency depreciated 356 percent against the US dollar through September 20 of that year.

    “You’d be pretty comfortable if the Fed had a stablecoin; if someone else had a stablecoin, you’d be less comfortable,” he said. “If it’s stable and better, and people are comfortable with it, it’s good for the economy, banks, and everyone.” But that’s what I’d be concerned about: is it truly a stable coin?”

    The executive went on to say that he believes a central bank digital currency (CBDC) is “inevitable,” and that he believes the increasingly digital financial system will be able to handle it well.

    Banks and the cryptocurrency market are not competitors.

    Montag stated that he does not see the crypto industry competing with banks. Rather, he sees cryptocurrency as another asset class that some people like for a variety of reasons.

    “I came around to the idea that this could really have value and understood why people would value it,” he explained. “The concept of a global store of value and global movement made sense to me.”

    Montag stated that there are many currencies in the world that many people would not want their money in, and that moving money across borders can be costly. Some of the benefits of cryptocurrencies may be less relevant to Americans, who have a more stable currency, according to the COO.

    “I can see why some people like it, want to use it, and [have] that hope for stability,” Montag said. “We have no idea how stable any of the coins are.”

    What is the next step?

    In addition to its recently launched crypto research initiative, Bank of America now facilitates bitcoin futures transactions. The strategic direction of the bank’s further foray into the space, as well as the timeline for doing so, remains to be seen.

    “We’re certainly aware of wallets like Venmo, Square, and Robinhood, as well as what’s going on in that space and in crypto,” Montag said. “We manage $3 trillion in assets, so we’re thinking carefully about what we need to do, what we should offer our clients, and how we should do it.”

    “Getting consistency around the process and rules around it will be critical for more mainstream acceptance of cryptocurrency,” the executive noted.

    “It will be interesting to see if it is truly part of a portfolio that someone should have or not.” Montag stated. “… We do have a fiduciary responsibility on those types of things, and where that goes is determined a lot by the asset itself, how much support it receives, and what happens around it.”

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