Until recently, Bitcoin and cryptocurrencies in general were largely regarded as a fringe anarcho-capitalist movement or one giant get-rich-quick scheme. However, in the midst of the rising trend of ICOs, the thousands of possible real-life-use applications, and the latest Bitcoin boom (which brought the coin over US$8000), the world is starting to view cryptocurrency as a legitimate asset – or in some cases, a legitimate threat.
According to a recent report from the UK’s Telegraph, the France-based bank has stated that neither Bitcoin nor any other cryptocurrency will ever become a replacement for traditional currencies because of the lack of a ‘lender of last resort’. In other words, the decentralized nature of cryptocurrency would present a major problem if something went wrong.
For example, in the case of a financial crisis (i.e. 2008), BNP argues that there would be no one to bail Bitcoin – or its users – out. However, BNP’s statements were focused on the hypothetical possibility that or another cryptocurrency would completely replace traditional currencies, and that cryptocurrency would be used to pay off mortgages and for other financial services. For BNP, having a central entity as a backup and source of security is essential.
Additionally, BNP’s report stated that the fact that the value of Bitcoin has been rising is not enough to ensure its status as a reliable way to store value; its status as an abstract, fluctuating asset that is not regularly exchanged for goods and services in the way that fiat currency is means that it does not have “symbolic value in real terms.”
BNP also argued that Bitcoin’s “deflationary nature” could present a threat to the economy. The fact that Bitcoin has risen so much encourages its holders to save, not spend, their coins; on a large scale, this could potentially lead to financial stagnation and a serious lack ofwithin an economy.
State-Sponsored Digital Currencies May Be Inevitable, According to Citigroup CEO
In spite of the risks imposed by cryptocurrency’s volatility, deflationary nature, and lack of regulation, Citigroup CEO Michael Corbat recently stated in an interview with Bloomberg at The Year Ahead Summit in New York that governments will be left with no choice but to create their own digital currencies.
The CEO claimed that the need would arise in order to prevent illicit activities that are associated with the deregulated nature of cryptocurrency. Said Corbat: “I don’t think governments are going to take lightly other people coming in and potentially disrupting their abilities around data, around tax collection, around , around know-your-customer.”
Some of the world’s banks and financial institutions have had a proactive stance on Bitcoin and the blockchain technology that cryptocurrency is based on. Major banks in countries like China, Russia, India, Australia, and Japan (among others) have experimented with the creation of their own cryptocurrencies that could be used as a means to instantly transfer funds internally and across borders, a process which currently can be time-consuming and expensive.
Will Wall Street Come Around?
Up until very recent history, most financial executives on have spoken of cryptocurrency in rather dismissive (or even hostile) tones. Jamie Dimon of JP Morgan famously said several months ago that Bitcoin was “a fraud”; Warren Buffet recently said that Bitcoin is “not a value-producing asset” and that there’s “a real bubble in that sort of thing”. Buffet has also called Bitcoin “a mirage,” and warned people to “stay away” from it.
However, Buffet also said in a 2014 CNBC interview that he was not completely opposed to the technology. “[Bitcoin is] a very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money, too…I hope Bitcoin becomes a better way of doing it.”
Just last week, Interactive Brokers Chairman took out a full-page ad in the Wall Street Journal to warn financial regulators that allowing Bitcoin futures to be traded could “destabilize the real economy”, an apparent response to CME’s announcement that it would begin offering Bitcoin futures by the end of this year. In any case, Bitcoin can no longer be ignored.
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