Once considered a fleeting fad, cryptocurrency has teetered toward becoming a more mainstream financial medium in recent years, causing an increasing number of U.S. banks to explore the decentralized system. But reaping its rewards means embracing an industry rife with volatility and risk — causing smaller, local banks to steer clear of the venture altogether.
As of January, the Federal Deposit Insurance Corporation reported that it was aware of 136 insured banks that were involved in ongoing or planned cryptocurrency-related activities, such as allowing bank customers to buy and sell cryptocurrency assets through arrangements with third parties or providing deposit services and lending to crypto asset exchanges. Banks can also sponsor debit cards that offer crypto asset rewards.
For those who have yet to be initiated into the multifaceted world of cryptocurrency, it’s defined broadly as a digital, encrypted medium of exchange that differs from traditional forms of currency in that its value is not managed or maintained by a central authority. Most cryptocurrencies, including the two most popular, Bitcoin and Ethereum, are built on blockchain technology and are categorized as being “pseudo-anonymous,” meaning transactions can’t be easily traced back to a user’s real-world identity.
Larger institutions can afford to run the risks of engaging with cryptocurrency, which has soared in popularity since it was first introduced in 2009. JPMorgan Chase, for example, debuted its own digital currency, JPM Coin, in 2020 and employs one of the largest crypto teams in the banking sector to help enable instant transfer and clearing of multi-bank, multi-currency assets on a permissioned distributed ledger, according to its website.
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