Over the past year, bitcoin and other virtual currencies (often referred to as “cryptocurrencies”) have skyrocketed in price and greatly increased their place in the public consciousness. While prices have since – to some extent – fallen back to earth, there is no question that recent months have seen a number of developments that have taken cryptocurrencies further into the financial mainstream. Futures contracts based on the price of bitcoin are now traded on a number of prominent exchanges, new virtual currency funds are established by the day, and recently, Goldman Sachs was reported to be on the cusp of “using its own money to trade with clients in a variety of contracts linked to the price of Bitcoin” while Barclays was rumored to be “gauging clients’ interest” in the bank starting a cryptocurrency trading desk. But the involvement of regulated financial institutions in the virtual currency markets implicates myriad banking, securities and commodities laws. One question in particular is especially relevant for banks and their affiliates: does the Volcker Rule allow banking entities to invest in or trade cryptocurrencies?
