Several large U.S. banks are reportedly engaging in internal discussions regarding potential expansion into the cryptocurrency sector. This comes as regulators are offering stronger endorsements of digital assets, according to multiple industry executives. Initial forays are expected to be measured, focusing on pilot programs, strategic partnerships, or limited cryptocurrency trading. These wall Street firms, previously constrained by stringent regulations, are now positioning themselves for potential growth in the crypto space.

Despite the evolving regulatory landscape, major lenders are proceeding cautiously, wary of being the first to overextend into crypto and risk non-compliance with changing rules. These executives, who preferred to remain anonymous, emphasized that firms will closely monitor each other’s moves. Should a major player expand successfully without encountering issues, others are expected to quickly follow suit, initiating small-scale pilot projects and evaluating further buisness opportunities.

However, not all institutions are eager to jump in headfirst. Jamie Dimon, CEO of JPMorgan Chase, has expressed reservations about entering crypto custody or substantially expanding crypto-related activities, even if regulations were to ease.

“When I look at the bitcoin universe, the leverage in the system, the misuse in the system, the money laundering issues, trafficking, I’m not a fan of it,” Dimon told investors. He added,”We’re going to allow you to buy it,we’re not going to custody it. . . . I don’t think you should smoke, but I defend your right to smoke. I defend your right to buy bitcoin.”

Former U.S.President Donald Trump had previously expressed intentions to become a “crypto president”. He aimed to boost digital asset adoption and create a strategic bitcoin reserve.

Despite these encouraging signals, banks are seeking clearer regulatory guidelines to understand the permissible scope of their crypto activities. Dario de Martino, A&O Shearman M&A partner, noted, “The shift in the stance is encouraging for traditional lenders, but they are still approaching it with caution and viewing the changes in regulation as an opportunity to engage and not a free pass.”

Custody services, involving the storage and management of crypto assets, are seen as promising but possibly risky due to thin margins. Many banks are expected to enter this area through partnerships with existing crypto firms.

Charles Schwab CEO Rick wurster indicated that regulators are signaling a favorable habitat for large firms to expand in crypto, reinforcing Schwab’s plans to offer spot crypto trading within a year. New regulators under Trump have also suggested bank-amiable crypto policies. The U.S. Office of the Comptroller of the Currency (OCC) has already paved the way for lenders to engage in certain crypto activities, including custody, stablecoin operations, and participation in distributed ledger networks.

The Securities and Exchange Commission (SEC) has also rescinded previous accounting guidance that made crypto dealings expensive for banks.

Bank of America CEO Brian Moynihan suggested that the bank could launch stablecoins if regulations permit, and that the U.S. banking industry will embrace cryptocurrencies for payments under the right conditions. Morgan Stanley CEO Ted Pick stated that the firm aims to collaborate with regulators to facilitate crypto-related transactions and is considering adding crypto to its e-trade platform.

Some large banks are also in preliminary discussions about issuing a joint stablecoin. However, banks are seeking greater clarity on anti-money laundering (AML) rules and regulatory oversight before committing further to crypto. They are also advocating for consistent guidelines across banking and market regulators before launching new digital asset businesses, given the inherent volatility in crypto values.

Currently, banks are carefully evaluating their crypto prospects and conducting small-scale pilot programs.

Matthew Biben, co-head of the global financial services group at King & Spalding, noted, “While a much-improved environment, banks will continue to have concerns around anti-money laundering and regulatory compliance.”

Shifting Landscape

“The shift in the stance is encouraging for traditional lenders, but they are still approaching it with caution.”

Banks are seeking to clarify whether they can engage in crypto lending or act as market makers for digital assets.The existing regulatory framework for traditional banking is well-defined, and similar clarity is needed for digital assets.

The crypto working group under David Sacks, the Trump-appointed crypto czar, lacks depiction from banking regulators, which some believe needs to be addressed to enable meaningful participation from large banks.