Bitcoin vs. Wall Street: A love-hate story

Phillip Kim is a marketing analyst at Snapcard, a company that provides Bitcoin wallet and Bitcoin payment processing services.

"First, they ignore you..."

For the first few years, Wall Street didn’t respond. It wasn’t until June 2011 that the Wall Street Journal mentioned Bitcoin in a blog post. As the Bitcoin community waited, advocates and enthusiasts of the digital currency speculated why the financial bastions of America weren’t discussing Bitcoin. Were banks not taking Bitcoin seriously enough, or did they feel threatened by its potential? Were they treating it as a passing fad, or were they trying to vet it from a mainstream adoption perspective? They certainly weren’t going to ignore a new technology that was taking food from their mouths.

Things changed in 2013, when Bank of America Merrill Lynch became the first major U.S. bank to publish a research report on Bitcoin. The report, titled “Bitcoin: A First Assessment,” identified Bitcoin’s potential to become “a major payment method for e-commerce” and “a strong competitor to traditional money transfer service providers.” It also noted that “Bitcoin has clear growth potential” and provided a comprehensive analysis of the currency’s benefits.

That gave bitcoin believers some hope that Wall Street would embrace the new technology, a perception reinforced by another development that month when JPMorgan Chase filed a patent for a homegrown cryptocurrency similar to bitcoin.

"... then they laugh at you, then they hit you... "

In January 2014, JPMorgan Chase CEO Jamie Dimon burst the bubble of hope by declaring that he was not a fan of Bitcoin. Soon after, the company released a report slamming Bitcoin, saying it was "vastly inferior" to fiat currencies.

In a memo to clients, Steven Englander, global head of foreign exchange strategy at Citigroup, said bitcoin faces three major risks: security; competition from other digital currencies; and competition from traditional financial institutions.

Goldman Sachs also took aim at bitcoin in a research note, saying it "will likely fail to be used as a currency" despite "the potential of its ledger-based technology."

In March 2014, James P. Gorman, CEO of Morgan Stanley, called Bitcoin "completely surreal" and admitted that he didn't understand the currency. This series of events made Bitcoin enthusiasts doubt that Wall Street was not ready to embrace the technology or even take it seriously.

But soon, the tide began to turn again. In March of that year, just a month after Morgan Stanley's CEO made disparaging remarks about Bitcoin, the company held an event about Bitcoin in New York. Citigroup published a report in May confirming that Bitcoin is a threat to debit and credit card issuers. Deloitte, which had been silent on the topic, also released a report in June 2014, saying: "As a natural step in the evolution of money, Bitcoin is the best idea."

The Year of Bitcoin

In January 2015, the New York Stock Exchange, USAA, BBVA, and former Citigroup CEO Vikram Pandit shocked the world by investing in Bitcoin service provider Coinbase, which had received approval to launch the first Bitcoin exchange in the U.S. A few days later, brothers Cameron and Tyler Winklevoss founded Gemini, “a fully regulated, fully compliant, New York-based Bitcoin exchange” that some have called “the Nasdaq of Bitcoin.”

In March, Nasdaq announced that it would support Noble Markets, giving traditional investors tools to trade digital currencies just like they buy and sell stocks. In the same month, Goldman Sachs Group said in a report that Bitcoin could shape the future of finance, a much more optimistic attitude than the previous year.

Even more powerful evidence than public statements and investments is that Wall Street has begun hiring people with expertise in the digital currency space. In January, financial employment agency Glocap posted a job posting for a "junior bitcoin execution trader" for a San Francisco hedge fund, while JPMorgan Chase is looking for an employee who "has thoughts on bitcoin and other cryptocurrencies" and "may be conflicted about the prospect of working at a large financial institution." If banks didn't initially see bitcoin as a threat to their financial system, they clearly took notice of the companies that have emerged in this emerging industry and are competing for its top talent.

Wall Street traders loved Bitcoin from the beginning

Like those new employees, existing traders at famous financial institutions are also very interested in Bitcoin. In 2012, Bitcoin was popular among Wall Street traders, and employees of Morgan Stanley and Goldman Sachs visited Bitcoin trading websites 30 times a day.

Some Bitcoin enthusiasts on Wall Street have even united to work together to raise public awareness of Bitcoin. In September 2014, the Digital Currency Council was established in Manhattan to provide consulting, trading and certification services to financial professionals. In March 2015, a team of Wall Street bankers established the Wall Street Bitcoin Alliance as a "Wall Street advocacy organization in the digital currency era."

As Wall Street struggles to adapt to a changing environment, some high-profile bankers and corporate executives are leaving their jobs to join bitcoin companies.

In December 2014, Paul Camp, former global head of trading at JPMorgan, left to join Circle, a digital currency wallet company, as CFO. In March 2015, Blythe Masters, former global head of commodities at JPMorgan, also left the company to become CEO of Digital Asset Holdings, a company seeking to use Bitcoin technology to make transactions more efficient for financial institutions. In April of this year, Jacob Dienelt, a former investment manager at Morgan Stanley, became the treasurer of Factom, a Bitcoin auditing company. The list goes on as industry veterans begin to recognize the paradigm shift toward digital currencies.

A Bright Future for Bitcoin and Wall Street

“You can find the word ‘Bitcoin’ on any whiteboard on Wall Street,” Matthew Roszak, an investor at Noble Markets, told Inside Bitcoins in March.

The love-hate relationship between Wall Street and Bitcoin got off to a rocky start, but that’s just the beginning. These two forces have an opportunity to build each other up, rather than tear each other down. Wall Street’s influence can bring Bitcoin into the mainstream, while Bitcoin can help bankers provide better banking services that are efficient and trustworthy.