Major players in the financial services industry are taking a serious look at bitcoin, with some viewing the virtual currency as an opportunity to bulk up profits.
Wall Street had been reticent to wade into the regulatory and policy debates surrounding the cryptocurrency, especially in the early years, when bitcoin appeared to be little more than an Internet phenomenon.
Carol Van Cleef, a co-chairwoman of the global payments practice at Manatt, Phelps & Phillips, said companies are trying to figure out what the virtual currency might mean for their businesses.
“The financial services industry is starting to look more closely at bitcoin and other cryptocurrencies to determine whether this is a currency that is going to supplant them or something they’re going to embrace as part of one of their financial services offerings,” she said.
The exploratory approach is a marked contract from a few years ago, when the financial industry was mostly indifferent to bitcoin’s rise.
“This is the work and study period,” said Jim Harper, global policy counsel at the Bitcoin Foundation, the major trade group for bitcoin companies.
Advocates like Harper say that bitcoins, which only exist online, as well as the technology that allows them to be traded can revolutionize the way people spend money, just like credit cards did 40 years ago or the Internet did over the last two decades.
But first, banks and financial companies need to understand what bitcoin is and how it works.
Companies including PayPal had previously considered bitcoin a competitor, but the chief executive of eBay, which owns the payment company, said more recently that it will “play a very important role in the future.”
“Exactly how that plays out, and how we can best take advantage of it and enable it with PayPal, that’s something we’re actively considering,” John Donahoe said at eBay’s annual shareholder meeting last month. “It’s on our radar screen.”
In recent weeks and months, other financial titans from Goldman Sachs to Citibank and Discover have taken a look at the digital cash.
A March analysis from Goldman Sachs, for instance, said that the money “likely can’t work as a currency” but could “hold promise” for sending money without having to go through a middleman like Western Union or a credit card company.
However, not all financial institutions are enthusiastic.
“We as a company are learning more about these currencies and their potential rewards and risk, but we are in no way embracing or endorsing any of them and have not made any decisions on their viability,” a spokeswoman for Wells Fargo told The Hill.
Bitcoin has been around since 2009, but rose to prominence in the U.S. only last year.
The bitcoin-to-dollars exchange rate has fluctuated widely in recent months. One bitcoin is now worth about $650, compared to about $100 a year ago and a high of more than $1,000 in late 2013.
Bitcoin evangelists have faced skepticism from law enforcement officials who worry that the relatively anonymous nature of the currency makes it an easy vehicle for laundering money and other illegal activities.
While federal regulators have adopted a basic framework for dealing with bitcoin and its operators, established financial players worry that the value of bitcoins remains too volatile and that consumer protections are lacking.
“You won’t see a big rush of people to capitalize on this new innovation until all the other issues are resolved,” said financial services lobbyist Doyle Bartlett, a founding partner of Eris Group.
Another financial industry lobbyist who asked not to be identified called bitcoin a “fascinating technology” but said that the benefits could erode as new oversight is put in place.
“If it grows, there are going to have to be some sort of consumer protections put on it,” they said. “Once you start getting into those types of regulatory structures, it looks like a less efficient model of existing payment options.”
Banking regulators, including the Treasury Department and the Securities and Exchange Commission, require bitcoin exchangers to register with the government. The IRS deemed that bitcoin should be treated as property, and not currency, for tax purposes.
Treasury’s Office of the Comptroller of the Currency confirmed to The Hill that it has attended informational meetings on bitcoin, but could not provide any further details.
Analysts from K Street to Wall Street are also working behind the scenes to see how the currency might evolve in the future and at what point it could become mainstream.
Lobbying on the issue has been scant, however, according to Van Cleef.
Still, “there is something different here than anything we’ve seen before,” she said. “There’s a solid movement behind this type of a concept — a force unlike anything I’ve ever seen before, and it has elicited responses from regulators in ways we’ve never seen before.”
To date, small businesses looking to decrease transaction fees have been the most active on the bitcoin front. However, larger retailers are beginning to take note.
Subscribers of the satellite TV company DISH Network will soon be able to pay their monthly bills in bitcoins. Shoppers at Overstock.com have been able to order clothing, furniture and other home goods with the currency for months.
And on Tuesday, rapper 50 Cent announced that fans could pay for his new album, “Animal Ambition,” with bitcoin — adding a “cool factor” that could boost its popularity.
Once a major bank or credit card company starts getting involved, the bitcoin movement will really jump forward, observers said.
But it could be a while to convert the masses to a financial concept that many regulators and financial pros are only beginning to understand.
“I think bitcoin is incredible and the technology is really profound and will have lasting consequences but I think it will be adopted at a human pace and not an Internet pace,” Harper, of the Bitcoin Foundation, said.