Bank reluctance to host accounts for Bitcoin-related transactions is an obstacle for businesses seeking to expand its use. Without access to traditional banks and the ability to freely exchange Bitcoin for other currencies, the virtual currency risks remaining a novelty for niche users. The issue is expected to be a prime topic of discussion at a conference for Bitcoin enthusiasts next week in Las Vegas.
Richard Riese, senior vice president of the American Bankers Association, said the ability to bank Bitcoin transactions “is not high on our members’ list” of priorities. By contrast, at a recent ABA conference, bankers were less concerned about providing bank accounts for marijuana sellers in the states of Colorado and Washington, which have legalized recreational use while it remains a federal crime.
Because of regulatory pressure in the U.S., much of the exchange business has moved outside the U.S. to Britain, Japan and China, Jered Kenna, founder of Tradehill, the Bitcoin exchange that lost its bank, said in an interview. LightSpeed Venture Partners, based in Menlo Park, California, announced on Nov. 18 that it would invest $5 million in BTC China, now the world’s largest Bitcoin exchange by volume.
“The biggest indicator that the U.S. is losing this battle is that the first major VC to make an investment was in China,” Kenna said.
Bitcoin-related businesses say that when they do find banks willing to work with them, they often require them to keep the banking relationship quiet. Fred Ehrsam, co-founder of Coinbase, a San Francisco company that facilitates transactions for Bitcoin users by hosting digital wallets to store the currency, said the banks his firm uses don’t want to be inundated with requests.
“Our bank has asked us not to tell -- not because they’re ashamed but because so many Bitcoin businesses are looking for bank accounts,” Ehrsam said.
Mary Dent, a former bank general counsel in Silicon Valley, said bankers are reacting to Bitcoin the way most people do to any new payment form.
“If you heard about somebody getting mugged for the first time, you’d think cash is crazy,” said Dent, founder of Palo Alto, California-based consultancy dcIQ. “If you heard about credit card fraud for the first time, you’d think cards are crazy. Bitcoin is suffering from that.”
Richele Messick, a spokeswoman for Wells Fargo, declined to comment, as did Tyler Daluz of Citigroup Inc.
This idea -- that Bitcoin is more of a threat than an opportunity -- has dominated bank thinking about Bitcoin for most of its existence, Dent said. The federal bust of the Silk Road Hidden Website, an online drug and weapon marketplace where users paid in Bitcoin, highlighted the potential for illicit business, while thieves have also purloined Bitcoins online.
Benjamin Lawsky, the superintendent of New York’s Department of Financial Services subpoenaed 22 Bitcoin-related companies this year. In an Oct. 1 interview, he said the “major advantage” Bitcoin provides is anonymity, a cloak for illegality.