Banks Desperate to Stop Cryptocurrencies Like Bitcoin
The story came a month after China’s ban on Initial Coin Offer (ICO), an unregulated way of raising financing by cryptocurrency startups.
Following the statement, Bitcoin took a 10% dive, accelerating the bearish mood that had started with China’s ban.
A week later, Bitcoin recovered its stride and continued climbing, and the truth is emerging that Mr. Dimon may not have meant what he said on Bitcoin.
1st, it is becoming clear that if cryptocurrencies maintain the steady growth, banks and in a special way the bulge brackets of Wall Street will be the biggest losers. This may be the reason Mr. Dimon is fiercely coming out to tear into pieces a technology he probably fears will make his job obsolete.
The Bitcoin story began in 2010 in the aftermath of the global financial crisis. The digital currency adoption is believed to have been necessitated by the failure of the traditional financial systems to safeguard the interests of depositors and investors.
In an interview with the WS-J, Blythe Masters, the CEO of Digital Assets Holdings, notes that the rise of digital currencies such as Bitcoin is a “principled” response to the Y 2008 financial crisis.
According to Ms. Masters, digital currencies are decentralized meaning that individuals can make financial deals directly with each other without the intervention of central banks.
The Y 2008 financial crisis is believed to have been precipitated by monetary policies put in place by the Fed.
In fact, Alan Greenspan, the then Federal Reserve Chairman, admitted before Congress that the Fed had made a mistake to hold rates at extremely low levels, therefore, creating the housing bubble. The low rates made it possible for banks to engage in binge lending eventually resulting in massive defaults and hence the financial crisis.
This is not an isolated case.
The great depression of 1929 was also caused by the monetary policies instituted by the Fed. Among the grave mistakes of the Fed was the failure to print enough money between Y’s 1930 and 1933.
With the centralized financial systems carrying the blame for most of the world economic woes, there is no doubt that a decentralized system has a place in our world today.
Bankers are fearful that the cryptocurrency technology will move control from central banks, which have always played to the tune of Wall Street, to the end users. The control shift means that banks will no longer be needed as financial intermediaries.
Also, with Central banks having little control on the circulation of cryptocurrencies, banks will be required to innovate in order to stay afloat.
This implies that there will be no bailouts of any kind and therefore banks that fail to innovate will be forced to take The Lehman Way out.
Moreover, investor’s trust in cryptocurrency is growing daily, and therefore the thought of a cryptocurrency standard is not farfetched. What this means to bankers is massive disruption which might see most of their core businesses being rendered obsolete.
In Y 2009, Satoshi Nakamoto, the incognito brain behind the digital currency bitcoin, released a paper detailing how cryptocurrencies will help eliminate the illusionary concept of trust in financial services.
According to Mr. Nakamoto, the trust concept has failed terribly in today’s financial systems with bankers ignoring their fiduciary duties in favor or personal interest. On the other hand, central banks and other related regulatory bodies have also failed to protect consumers by colluding and protecting the bankers.
Mr. Nakamoto notes that the solution can only be found by replacing the trust concept with what he calls crypto-proof. The philosophy behind crypto-proof is that all users are in equal control meaning that the chances of foul play are nearly zero.
Bankers like JPM’s Jamie Dimon may shun cryptocurrencies because they know that the technology is real and is coming for their business. This may explain why his firm’s wealth management arm, JP Morgan Chase Securities, reportedly bought $350,000 worth of Bitcoin tracker XBT, just a few days after criticizing the technology.
While it may take decades for the digital currencies to fully take over the banking sector, the revolution is on the way, and bankers, therefore, need to be ready. With the growth witnessed in cryptocurrencies such as bitcoin and etherium, it is logical to conclude that the politically controlled financial systems are short lived.
For the conventional banking to remain relevant in the age of cryptocurrency, it must adopt bitcoin and innovate consistently.
The denial from bankers such as Jamie Dimon will do nothing to the sector but make it bow to the disruptive technology.
By James Hoffer
Paul Ebeling, Editor