Nine years ago, Bitcoin was invented with the intention of creating a peer-to-peer electronic cash system that removes the middleman when it comes to monetary transactions. The breakthrough that made this possible was the blockchain, which does not involve any monetary institutions whatsoever and avoids the unnecessary interchange fees.
Thus, the recent rise of cryptocurrencies can certainly disrupt many of the conventional financial institutions and act as a layer similar to the central banks, making them a threat to these intermediaries.
Bank of America, one of the largest banks in the world addressed this issue in a regulatory filing on Thursday, acknowledging that cryptocurrencies pose a competitive threat to their business model.
The report, filed on Feb. 22 under the U.S. Security and Exchange Commission (SEC), detailed a list of risks – be it economic, geopolitical, and operational – faced by the North Carolina-based bank in the latest fiscal year. For the first time in the history of modern banking, the rising adoption of cryptocurrencies was included on the list.
In the report, which was part of Bank of America’s annual 10-K filling with the SEC, the bank was visibly worried that the increased competition posed by cryptocurrencies will “negatively affect (their) earnings” and affect “the willingness of (their) clients to do business with (them).”
“Clients may choose to conduct business with other market participants who engage in business or offer products in areas we deem speculative or risky, such as cryptocurrencies.”
The bank, which was the second largest in the U.S., said that as cryptocurrencies become more and more mainstream, they will have to account for additional expenses that are required to upgrade their current range of products and services to adapt to the changing times.
“The widespread adoption of new technologies, including internet services, cryptocurrencies and payment systems, could require substantial expenditures to modify or adapt our existing products and services,”
In the rather lengthy 150,000-word report, the bank also explained that the introduction of cryptocurrencies to the modern financial space will limit their ability to comply with anti-money laundering laws.
“Emerging technologies, such as cryptocurrencies, could limit our ability to track the movement of funds. Our ability to comply with these laws is dependent on our ability to improve detection and reporting capabilities and reduce variation in control processes and oversight accountability.”
Three weeks ago, Bank of America, along with some of the major consumer-facing lenders like Citibank and JPMorgan announced that they were blocking the use of credit cards to purchase Bitcoin and other cryptocurrencies.