Cryptocurrencies pose a competitive threat to Bank of America’s business, the company said in a regulatory filing Thursday.
“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 said. Such increased competition may “negatively affect our earnings” or affect “the willingness of our clients to do business with us.”
The comments were part of an annual 10-K filing with the U.S. Securities and Exchange Commission about the bank’s operations and business risks. The bank said it had no further comment.
Bank of America’s filing added that widespread adoption of new technologies in financial services, including cryptocurrencies, “could require substantial expenditures” in order to adapt to evolving industry standards and consumer preferences.
Popular interest in digital currencies has taken off in the last several months, helping send bitcoin from less than $1,000 at the beginning of 2017 to a high above $19,000 in mid-December. The surge of interest led to the launch of bitcoin futures by CME, the largest futures exchange, and its competitor, Cboe, in December as well. Bitcoin was trading well off its record highs Friday, at around $10,000.
However, Bank of America has not embraced the rise of interest in cryptocurrencies. The firm’s Merrill Lynch wealth management arm banned its roughly 17,000 financial advisors from buying bitcoin-related investments for clients. The bank also said earlier this month that customers cannot use its credit cards to buy cryptocurrencies.
The SEC filing also noted that digital currencies limit the bank’s ability to track movement of funds and comply with laws such as anti-money laundering regulation.
Theoretically, the blockchain technology behind bitcoin and other cryptocurrencies is a threat to the existence of major financial firms. Blockchain eliminates the need for a third-party intermediary like a bank by creating an instant, permanent and secure record of transactions.
The development of cryptocurrency trading so far has seen the emergence of a new industry with rapidly growing businesses such as exchanges like Coinbase and bitcoin “mining” companies like Bitmain.
Meanwhile, Bank of America has been quietly researching blockchain technology, as are other major banks.
The company has more than 70 patents that can incorporate applications of blockchain, and several dozen other patents for “digital wallets,” means of authentication and other processes needed to apply the technology in banking and commerce, according to David Pratt, managing director at Mcam-International. The firm maintains an archive of patent-related documents in 160 countries.