If you can’t beat ‘em, join ‘em. That’s the recent acquiescent stance of the Federal Deposit Insurance Corporation (FDIC) after the chairman of the board of directors, Jelena McWilliams, expressed a few weeks ago, “If we don’t bring this activity [Bitcoin] inside the banks, it is going to develop outside of the banks. … The federal regulators won’t be able to regulate it.” We are at an inflection point for when the thousands of banks holding trillions of dollars of deposits will begin to play a role in Bitcoin’s dominance. The FDIC and the Office of the Comptroller of the Currency (OCC) are under pressure to find solutions for adapting to Bitcoin’s global influence. Political leaders are encouraging regulatory reform and independent private companies are racing to respond with innovative technological solutions for a new financial framework.
I’ve worked in international finance and banking consulting for over a decade. For years, Bitcoin was willfully ignored and dismissed by the industry. It was unprofessional to mention its viability or utility in the traditional environment. Now, regulators and traditional bankers are capitulating and looking for how Bitcoin can sit within the existing financial structure. Regulators prefer to find a home for Bitcoin within legacy institutions than to allow Bitcoin to create a shadow financial system. This initiative is accelerating the development of Bitcoin-enabled financial technology for banks and corporations who seek Bitcoin-related products and services. But, before we can walk, we need to crawl.
An illustrative example is when Mayor-Elect Eric Adams of New York City announced he wanted his first three months’ salary to be paid in bitcoin. Adams’ spokesperson needed to clarify that the city of New York lacks the mechanism to pay salaries in bitcoin. It would be up to Adams to convert his salary independently on an exchange if he wanted to hold his salary in bitcoin. Despite the demands of the consumer and the support of regulators, the technological infrastructure is playing catch-up.
The good news is this Bitcoin infrastructure is being privately funded and developed. I attended Money20/20 in Las Vegas, Nevada, in October to get a closer look for how the private sector is responding to meet demands. Money20/20 is a leading mainstream financial technology conference where companies and industry leaders from around the world come together to discuss the future of money. This year, Bitcoin stood out. But this was not just fireside chats about Bitcoin’s promise. This was about the numerous vendors marketing their products to support a Bitcoin-enabled financial ecosystem. Among these vendors were firms developing payroll options to allow employees to select what percentage of their pay they would like to auto-convert to bitcoin, addressing the friction Mayor-Elect Adams experienced.
Bitcoin payroll options is part of the dream that these companies are helping corporations and banks to realize. Asset-based lending against bitcoin has existed for years but only exclusively through private lenders. This service will become more accessible and likely offered at lower interest rates across thousands of banks nationally for institutions and retail clients due to increased liquidity.
As banks include Bitcoin into their suite of services, retail and corporate customers need to prepare for new unfamiliar scrutiny that historically goes against the ethos of the digital asset. Bitcoin’s hallmark feature of anonymity could deteriorate as banks have more stringent know-your-customer (KYC), anti-money laundering (AML) and compliance policies that the customers who choose to custody bitcoin at a bank must follow. Another hallmark feature of Bitcoin, self-custody, will be forfeited if a customer chooses to use a bank as their custodian. Finally, much more clearly defined tax laws will be formed and enforced. These laws will create more transparency on reporting of capital gains or on the exchange of bitcoin to pay for goods or services that could be a taxable event for federal income tax purposes.
So, what will the future look like? All of these developments will make holding, taxing and transferring bitcoin safer, easier and more frictionless. There will be more options to use bitcoin where you work, shop and bank. Some repeat the mantra “Bitcoin is early,” but we are beyond that now. The venture capitalists, institutional investors and vendors building the tools for a Bitcoin-enabled financial system who flew to Vegas for Money20/20 all agree. Look forward to Bitcoin coming to a community bank near you.
This is a guest post by Michael Jaycee. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.