How cryptocurrency could be coming for your bank account

I’ve always thought of crypto as an unlikely addition to mainstream finance, like mustard on spaghetti. That’s because the financial world has been positively withering toward crypto. Jamie Dimon, CEO of JPMorgan Chase, promised in 2017 to fire any trader who dabbled in bitcoin, and other major banks took a similarly dim view.

So I perked up over the past few weeks when some of the biggest names in banking suddenly began to compliment crypto. I initially assumed they were just genuflecting to Washington: The Trump family loves crypto; the president has made about $7 billion from a coin that bears his name; his sons run a crypto company.

But my reporting shows something more complicated. Wall Street’s crypto plans aren’t just about politics. They offer a new way to profit — one in which banks can make more money by exposing their clients to more risk while facing less oversight. Some changes may threaten the very backbone of the banking system: your personal checking account.

Crypto crash course

Cryptocurrencies are digital money not issued by any particular government. Unlike paper currencies, whose value can be at least partly controlled by central bank interventions (think: printing more money), the price of crypto is set by supply and demand. Usually, the more people who want it, the more the price goes up, and vice versa.

That might be ideal for speculators who want to bet on crypto price swings, but it’s a huge drag for anyone who wants to use cryptocurrency to buy stuff. It creates uncertainty about whether a transaction today will cost the same tomorrow.

As a result, more people have turned in recent years to a form of cryptocurrency called a stablecoin. Unlike bitcoin, stablecoins have a fixed value and a price that doesn’t swing up or down. Those being developed now are pegged to the U.S. dollar.

What is happening?

Now the biggest banks in the country — Chase, Bank of America and Citi, among them — are planning to launch their own stablecoins. Retailers like Amazon and Walmart are also studying coins of their own.

This is all newly permissible under the GENIUS Act, a bipartisan law passed this summer with encouragement from the banks. The law is significant for a couple of reasons:

— Eliminating cash: It created a way for banks to offer customers stablecoins instead of handing back their money in cash. The stablecoins have to be exchangeable for U.S. dollars.

— Keeping the interest: Unlike the interest accrued in your checking and savings accounts, the law tells banks to keep the interest earned on stablecoins. If you have $25,000 in a high-yield savings account that pays 4% annually, you amass $1,000 every year. You’d forego that with stablecoins.

Your accounts

Bank executives said they foresaw a not-too-distant future in which banks direct people with checking accounts to exchange their money for stablecoins. You could then use those stablecoins to buy things instead of using cash or credit cards.

Banks’ stablecoins could be available as early as next year.

The benefits? For you, this could potentially mean low fees and fast speeds for tricky transactions like overseas transfers.

The drawbacks? Beyond losing interest on accounts, you would also forgo the federal insurance that pays back depositors in the event of a bank failure. That’s because the regulators treat stablecoin accounts as “investments,” not ordinary deposits. In short, your accounts would have fewer protections than they do now.

Almost every banker I spoke to brought up a historical parallel: The so-called Wildcat banking era of the 1800s, in which small state banks issued competing currencies with little oversight from Washington. Mini financial crises ensued as tiny currencies crashed — and the federal government had to intervene.