TheStreet
JPMorgan CEO Jamie Dimon says there's 'no value behind' cryptocurrencies like Bitcoin 'other than what the next person will pay for it.'

Despite last year's plunge in prices for bitcoin, big investors are pumping money into hedge funds and venture-capital firms that specialize in the fledgling market for so-called cryptocurrencies.  

In just the past 12 months, investments in cryptocurrency-related assets have nearly tripled to $14.4 billion, in more than 700 companies and funds, according to industry tracker Crypto Fund Research. Regulators in New York state describe the market as "thriving," and they've granted virtual-currency trading approvals known as "BitLicenses" to at least 18 companies. 

Yet giant U.S. banks like JPMorgan Chase (JPM - Get Report) , Goldman Sachs Group (GS - Get Report) and Bank of New York Mellon (BK - Get Report) that dominate Wall Street trading in everything from bonds, stocks, commodities and foreign exchange are increasingly at risk of missing out due to their own reluctance to jump into the cryptocurrency market. 

Reasons range from doubts about the market's viability to a lack of federal regulation of the fast-growing arena - a critical deficiency for banks that face oversight from at least five separate U.S. supervisory agencies, including the Federal Reserve and Office of the Comptroller of the Currency. Top Wall Street executives also worry about the potential for money-laundering via cryptocurrency exchanges and what the digital assets are actually worth. 

"Cryptocurrency is not supported by anything," Jamie Dimon, CEO of JPMorgan, the largest U.S. bank, told U.S. lawmakers during an April 10 hearing before the House of Representatives. "There's no value behind it other than what the next person will pay for it."

Federal regulators have done little to intervene in the nascent market, with the Securities and Exchange Commission recently publishing a "framework" that mostly exempted cryptocurrencies like bitcoin from the harshest regulations, instead focusing on digital "securities" that imply an interest in the future profits of the company that issues them.

The SEC's move could pave the way for new "initial coin offerings" - when companies raise capital by issuing digital "tokens" as an alternative to selling stocks in an initial public offering.

But some big-bank CEOs say they're sidelined by concerns that any activities in the market might run afoul of bank supervisors and other market overseers. None of the big banks have received New York's BitLicense, according to a list of approved companies provided by the state's Department of Financial Services.

News reports last year indicated that Goldman Sachs decided to start a cryptocurrency-focused trading desk and later scrapped the plan due to a lack of clear regulations.

The New York-based bank's CEO, David Solomon, denied the account at the congressional hearing in Washington - Goldman Sachs never planned to set up such a unit, he said.  

"When you're dealing with cryptocurrency, it's a new area," Solomon told the lawmakers. "There are a lot of issues, it is unclear from a regulatory perspective, and it's not clear whether or not in the long run, as a currency, those technologies are going to work and be viable."

JPMorgan earlier this year unveiled a "JPM Coin" based on blockchain technology, but the tokens can only be used by the bank's customers as a way of quickly sending payments to each other, and accounts have to be backed by deposits of government-issued currencies.

U.S. Rep. Warren Davidson, an Ohio Republican, said in a press release on April 9 that he had authored and introduced a "Token Taxonomy Act" bill to provide the "regulatory certainty the U.S. needs to take advantage of this thriving sector." He cited the growing popularity of blockchain, the computer programming that underpins cryptocurrencies.

"As the rest of the world speeds ahead to take advantage of this new technology, the U.S. is now lagging behind," Davidson said at the congressional hearing. 

The New York Department of Financial Services said it's now "taking the lead nationally" in overseeing the virtual-currency market.

Davidson, in the press release, criticized New York's licensing process as "onerous" and "heavy-handed," and the congressman warned that the "numerous" state efforts to oversee the use of blockchain technology are "conflicting" and further muddled by a "patchwork of judicial decisions."

Bank of New York, which serves as a key hub for the plumbing of Wall Street markets via its securities-clearing and custody operations, said in a web post in October that "cryptocurrencies raise significant risk and compliance issues for traditional custodians."

"The reputation of crypto markets as targets for hacks and fraud, as well as the potential anonymity of market counterparties, have to be addressed appropriately to manage operational, regulatory and reputational risk," according to the posting. 

Kirill Bensonoff, a partner at the startup Caviar, which invests in cryptocurrencies and real estate, said the big Wall Street banks might get so far behind in the new market that they have to pay a hefty premium to catch up by acquiring companies that are getting in now. 

"Now that we have more quote-unquote professional players in the market, they're going to have goals of hitting some numbers, and when they reach those goals, they're going to sell and take profits," Bensonoff said in a phone interview. 

Solomon, the Goldman Sachs CEO, said his firm "might at some point in time" set up a crypto-focused trading desk.

Wherever there's money, after all, Wall Street will try to take a cut.

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