Why Big Banks Attacked Bitcoin
Big Banks want to destroy Bitcoin before it destroys them.
Bitcoin, the “people’s currency,” has the potential to become a new currency, free of the control of big governments and big banks.
That’s why they both want to limit this potential. Each one in their own way. Big governments by stepping up regulations of Initial Coin Offerings (ICOs) and by shutting down cryptocurrency exchanges, as the Chinese government has announced recently, crushing cryptocurrencies.
Coin/Investment Trust Change 24H Bitcoin (BTC) -9.66% Ethereum (ETH) -11.22 Litecoin (LTC) -16.92 As of Friday September7 at 9 pm
Coin/Investment Trust Change 24H Bitcoin (BTC) -17.32% Ethereum (ETH) -19.74 Litecoin (LTC) -29.46 As of Monday September 14, at 7 pm
Big banks by attacking the very premise and the valuation of Bitcoin. Early in the week, for instance, J.P. Morgan Chase & Co. leader Jamie Dimon called the digital currency a “fraud,” and a “tulip bulb.”
Then there’s a Bank of America survey, which called Bitcoin, the “most crowded trade.”
To be fair, bankers aren’t the only ones that have raised their level of skepticism about the rapid ascend of Bitcoin and other digital currencies. But to call the digital currency a fraud and a tulip is more than skepticism, in my opinion. It undermines the potential of Bitcoin to become a “peoples’ currency,” and replace national currencies.
And that’s what concerns big governments and big banks. Big governments will lose seigniorage income—the benefits derived from printing money, and they will lose the ability to control the economy, as discussed in a previous piece here.
Losing the ability to handle the money that flows between central banks and the economy is at the core of the banking business and the very existence in the monetary economy. A Bitcoin economy, for instance, can promulgate peer to peer lending that substitutes traditional lending, where banks collect the “interest rate spread,” the difference between the interest rate they charge depositors and the rate they charge borrowers.
Still, Apostolos Pittas, adjunct professor of economics at LIU Post sees Bitcoin lending supplementing rather than undermining the traditional banking system. “Digital currency, as is the case with Bitcoin, helps to smooth the lending process. Recall what happened in 2007-2008 during the financial crisis. Credit dried up as banks stopped lending, and the markets froze. With a digital currency like Bitcoin, lending is decentralized, or peer to peer, and as a result, lending may continue, allowing money to reach those who need it.”
Simply put, the rise of Bitcoin can be a stabilizing rather than a destabilizing factor for the financial system, Apparently, big government and big banks do not see things that way at the moment.