Why Are Banks Scared Of Cryptocurrency? Should Investors Worry?

 

According to Investopedia, Cryptocurrency is defined as a digital currency that is created and managed through the use of advanced encryption techniques, has been on the forefront of the bubble in the global fintech space in recent years.

Cryptocurrencies such as Bitcoin, among others, are digital currencies and are outside the control of the banks, regulatory agencies or governments.

The Acceptance Of Cryptocurrency?

Businesses around the world are already accepting these virtual currencies in exchange for payment, with Nigeria not left out as companies are already raising funds via Initial Coin Offerings.

Asides accepting digital currency for payment, another means of owning it is through anonymous online exchanges. Bitcoin, which is definitely the most popular cryptocurrency, as at March 1, 2018 exchanged for ₦3.85 million to a coin. And $3.69 billion was traded on exchanges in the 24 hours preceding March 1, 2018.

Is it a lucrative venture to put your money into Cryptocurrency?

The answer from a cryptocurrency evangelist is definitely going to be affirmative. Some advocates of the market are even taking to public buses to preach the potential in investing in digital currencies. I just wish I made that up, but I didn’t — I got a flyer from a bus last year inviting me to a seminar about making quick cash investing in cryptocurrencies.

But the Central Bank of Nigeria (CBN) on the other hand says that neither are these currencies nor their exchange platforms licensed or under any regulatory body. According to the country’s apex bank:

“Transactions in virtual currenciess are largely untraceable and anonymous making them susceptible to above by criminals, especially in money laundering and financing of terrorism. Virtual currencies are traded in exchange platforms that are unregulated, all over the world. Consumers may therefore lose their money without any legal redress in the event these exchangers collapse or close business.”

Cryptocurrencies are subject to various forms of market manipulation which questions the integrity and volatility of the digital currency market. Sure, market manipulation is not really new nor peculiar to virtual currencies, but the unregulated status of the market makes it more volatile.

Dave Partner, who I may consider an advocate of digital currency, appears to be on the same side with the CBN on this. He believes the anonymity status of the market only protects the investors from the outside system. However, caution is key. He said:

“Invest only what you can afford to lose because of price volatility.”

Relationship Between The Contemporary Banking System and Cryptocurrency

A question was put on Quora about the relationship between cryptocurrency and the formal banking sector. A Supreme Strategist at Bitcoin Cash, Steven Ho, sees no reason why the formal banking sector can’t co-exist with Bitcoin (he was specific). According to him, Bitcoin will tear down the formal financial system and the best case would be to have an evolved financial system where it exists side-by-side with banks.

“Bitcoin will be the catalsyt that displaces the domination of ‘dishonest’ fiats (first phase is Gresham’s Law, second phase is Thiel’s Law). Governments and banks will need to transform themselves into more transparent and accountable entities to stay relevant.

Remember how difficult it was initially for motor cars to compete with horses? The good new for Fiat currency is that horses are still around.”

For Dave Smith, cryptocurrency is not a threat as fiat money can take on the attributes of blockchain easily in the event that central banks are issuing blockchain.

“In the non-conventional way crypto is a deterrent to crazy actions by those who manage fiat. I.e. if central banks tomorrow decide to print crazy amounts of money, there would be a mass exodus of fiat into crypto and other currencies/commodities. Combined with the anonymous nature of cryptocurrency, this subjects central bank actions to scrutiny by market forces and this is the real threat.”

Just as time is the currency in the 2011 sci-fi movie, in time, is there the possibility of digital currency taking the place of physical money?

Maybe no, considering that tax collection would be difficult and it might end up being a perfect tool for money laundering and other criminal activities. Bill Gates, former Microsoft CEO, believes digital currencies are causing death in a fairly direct way as they are being used to purchase illegal drugs.

Or the world might end up seeing a cordial relationship between the formal banking sector and virtual currency market.

Loading...

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.