Banks in the capital region steer clear of crypto

Once considered a fleeting fad, cryptocurrency has tipped toward becoming a more mainstream financial medium in recent years, prompting a growing number of U.S. banks to explore the decentralized system. But reaping the rewards means embracing an industry fraught with volatility and risk – prompting 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 involved in ongoing or planned cryptocurrency-related activities, such as allowing bank customers to buy and sell cryptocurrency assets through agreements with third parties or providing deposit services and lending to crypto-asset exchanges. Banks may also sponsor debit cards that offer rewards for crypto assets.

For those not yet initiated into the multifaceted world of cryptocurrency, it is broadly defined 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 “pseudo-anonymous,” meaning that transactions cannot be easily traced back to a user’s real identity.

Larger institutions can afford to risk getting involved with cryptocurrency, which has grown in popularity since it was first introduced in 2009. JPMorgan Chase, for example, debuted its own digital currency, JPM Coin, in 2020 and uses one of the largest cryptocurrencies . team in the banking sector to help enable instant transfer and clearing of multi-bank, multi-currency assets on a permissioned distributed ledger, according to the website.

Not all major banks have been as quick to jump on board. Bank of America does not support direct purchases of cryptocurrencies through its online banking platform, although customers can still purchase crypto assets by linking their accounts to a regulated exchange platform.

“There’s obviously a lot of inherent risk with the way these markets are and how volatile they can be, and with it not being accepted at the federal level to use as a payment necessarily, depending on what you’re doing, it’s something that a lot of the the larger financial institutions have no interest in adopting,” said Dana Martincic, business solutions advisor at Bank of America in Albany. the.”

Most local banks such as Trustco, Capital Bank, Pioneer Bank, Keybank and M&T Bank do not offer any crypto-related services and instead rely primarily on the more stable practice of accepting savings account deposits and writing mortgages.

It is likely that the recent turmoil in the financial sector only further strengthened their disinterest in entering space. In November last year, the cryptocurrency exchange FTX filed for bankruptcy when it ran out of money after the equivalent of a bank run. The crash rocked the already volatile crypto market, causing billions of dollars in losses. There were 11 banks that had done business with FTX and may have been involved in alleged wire fraud, according to a February report from the Office of the Inspector General.

The Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency issued a joint statement in January informing US banks of the risks of dealing with cryptocurrencies and the importance of preventing crypto-related risks that cannot be mitigated or controlled from migrating into the banking system .

“The events of the past year have been characterized by significant volatility and exposure of vulnerabilities in the cryptoasset sector. These events highlight a number of key risks related to cryptoassets and cryptoasset sector participants that banking organizations should be aware of,” the statement said, citing fraud and fraud among cryptoassets sector participants, legal uncertainty related to custody practices, redemptions and ownership rights and inaccurate or misleading representations and disclosures by crypto asset companies.

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