• Montag said he doesn’t view the crypto industry as a competitor to banks, but rather another asset class some people see value in
  • Bank considering its involvement in the crypto space from lens of a fiduciary with $3 trillion of assets under management, COO explains

As Bank of America has begun looking more into the crypto space, the bank’s chief operating officer said he believes certain characteristics of the blockchain and crypto could add a lot of value to banks.

“I believe some of the things that are happening today will provide that technological jump that allows banks to be more efficient, [have] less errors, be more compliant,” Bank of America COO Tom Montag said about crypto during a Chainalysis event on Thursday in New York City. “So we look forward to figuring out a way to use it best and have it be part of the system.”

Bank of America officially launched its cryptocurrency research division last month, led by Alkesh Shah, the bank’s head of global cryptocurrency and digital asset strategy.

The company released a report, called Digital Assets Primer: Only the first inning, in conjunction with the launch. It notes that 221 million people have purchased or sold a cryptocurrency as of June 2021, up from 66 million in May 2020.

“It’s difficult to overstate how transformative blockchain technology, digital assets and the thousands of decentralized apps that have yet to be created could potentially be,” the report states.

Keep reading for some takeaways from Montag’s latest comments.

Lending against crypto assets a possibility

When asked by Chainalysis CEO Michael Gronager about crypto companies and protocols offering loans against crypto assets, Montag said he believes “there’s certain things that probably need to happen” before Bank of America could enter that space. 

The COO explained that the bank currently lends against art, houses, boats and even railroad cars. He noted that if the crypto market shows more stability and less volatility, the bank could consider that in the future.

“Even in stocks, people can lose a lot of money lending money against stocks…so you can see why people get nervous about what exactly they’re lending against and how do they make sure they have it?”

Stablecoins need to prove stability

When asked about stablecoins, Montag noted the failure of Argentina basing their currency on the dollar.

By pegging its exchange rate to the US dollar in 1991, Argentina ended hyperinflation, reducing inflation rates to single-digit levels, according to a 2002 economic research letter published by the Federal Reserve Bank of San Francisco. In January 2002, it abandoned its peg to the dollar. Interest rates subsequently continued to rise and the currency depreciated 356% against the US dollar through Sept. 20 of that year. 

“If the Fed had a stablecoin, you’d be pretty comfortable; if someone else had a stablecoin you’d be less comfortable,” he said. “If it’s stable and it’s better and people feel comfortable with it, it would be good for the economy, banks, everybody. But that’s what I would be worried about — is it really a stable coin?”

The executive added that he believes a central bank digital currency (CBDC) is “inevitable,” noting that he expects the increasingly digital financial system will be able to handle a CBDC well.

Crypto market and banks are not competitors

Montag said he doesn’t view the crypto industry to be competing with banks. Rather, he said, he considers crypto to be another asset class that a portion of people like for a variety of reasons.

“I came around to the view that this could really have value and understood why it would have value to people,” he explained. “The global store of value concept and the global movement made sense to me.”

Of the roughly 180 currencies in the world, Montag said there are plenty that many people would not want their money in, adding that moving money across borders can be expensive. Some of the benefits of cryptocurrencies might not be as relevant to Americans, who have a more stable currency, the COO added.

“I can see why there’s an element of people that like it and want to use it and [have] that hope for stability,” Montag said. “We don’t know how stable any of the coins are.”

Where to go from here? 

In addition to Bank of America’s newly launched crypto research effort, the company currently facilitates transactions on bitcoin futures. The strategic direction around what form the bank could further delve into the space and the timeline for that remains to be seen.

“We’re certainly aware of wallets like Venmo or Square or Robinhood and what’s going on in that space and what’s going on in crypto,” Montag said. “We have $3 trillion of assets under management so we’re thinking responsibly about what we need to do and what we should offer to our clients and how we should do it.”

A key for more mainstream acceptance of crypto will be getting consistency around the process and rules around it,” the executive noted.

“It will be interesting to figure out, is it really part of a portfolio somebody should have or not?” Montag said. “…We really do have a fiduciary responsibility on those kind of things, and where that goes is determined a lot by the asset itself and how much support and what happens around it.”

  • Ben Strack is a Denver-based reporter covering macro and crypto-native funds, financial advisors, structured products, and the integration of digital assets and decentralized finance (DeFi) into traditional finance. Prior to joining Blockworks, he covered the asset management industry for Fund Intelligence and was a reporter and editor for various local newspapers on Long Island. He graduated from the University of Maryland with a degree in journalism. Contact Ben via email at [email protected]