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Earlier this week, Well Fargo announced that it would no longer allow users to buy cryptocurrencies with its credit cards. Last year, cyberspace was filled with warnings, cautions, and prophecies of gloom and doom from bankers and traditional financial institutions on Bitcoin and cryptocurrencies., JPMorgan James Dimon historically called Bitcoin a fraud – other bankers have said similar dismissive or skeptical words.
Cryptocurrencies debuted in the financial markets in 2009 as an alternative from of money free of government influence and control. However, its use was mostly restricted to innovators and early adopters. Bitcoin didn’t make the jump to attract the early majority of the mass market until 2015 when people started paying attention to the prospects of a peer-to-peer form of money that doesn’t need the intermediary of banks or traditional financial institutions. This piece provides insight into why traditional financial institutional are always talking down cryptocurrencies.
Crypto markets could potentially dwarf banks’ market size
The general cryptocurrency market has suffered a massive decline this year and the market cap of the entire industry is valued around $300B down from $578B in January. Once the cryptocurrency market is back to bullish ways, it could potentially have serious negative impact on the operation of banks. The $300B market cap of the cryptocurrency industry is a huge amount of money locked out of traditional financial institutions. Interestingly, banks have started taking proactive steps to stem the inflow of funds into cryptocurrencies.
The crypto industry could retire banks
The decentralized peer-to-peer nature of cryptocurrencies means that people can conduct financial transactions without the intermediary services of banks. You can keep your funds in your cryptocurrency wallet and then send the funds across to counter parties in near-instant time and at a low transaction cost. The decentralized models of the cryptocurrency industry also waters down the importance of banks as custodians of financial information. For instance, social network eToro, which recently announced the launch of its U.S. operations provides an innovative way for people to access the cryptocurrency markets and to become traders and investors.
Using its copy trading platform, new traders can watch, follow, and copy the trades of experiences traders instead of spending countless of hours learning how to trade, giving their funds to someone to trade on your behalf, or taking needless risks by going into the markets blindly.
The anonymity of cryptocurrencies keeps bank in the dark
Banks like knowing how much money you earn, how much you spend, how much you are saving, and how much debt you can afford to absorb. Banks typically use this information to compute your creditworthiness and they work with government agencies to compute taxes and other matters. The inherent anonymity of cryptocurrencies inadvertently keeps banks and government monetary agencies in the dark about your financial transactions.
Eventually, cryptocurrencies will need to adopt some measure of transparency and accountability. You can count on governments to find creative ways to craft regulations that peels away the layers of anonymity on cryptocurrencies.
Cryptocurrencies have proven to deliver exponential returns
Last year, Bitcoin experienced an unprecedented surge in mass-market adoption and the value of the cryptocurrency surged more than 1,400%. Many people who missed the opportunity to buy Bitcoin in its earliest days quickly started looking for opportunities in other cryptocurrencies such as Ripple, Monero, Ethereum, Litecoin, and Bitcoin Cash among others. Ethereum for instance rewarded investors with more than 12,000% gains last year. The lure of supersized gains was simply irresistible to many people who ignored warnings that cryptocurrencies were still speculative investments. Banks have a fiduciary duty to warn people about making rash financial decisions; however, the fact that people are ignoring the warnings all the same is a worrisome trend for banks.
