In past one year, the cryptocurrency markets have surged at an unprecedented rate and the investor participation is continuously increasing. The virtual digital currencies backed by the Blockchain Technology have turned out to be one of the best sources of investment and have been posing a huge challenge to the traditional banking systems and institutions. However, this form of investments has got its own associated risks and uncertainties.
Now, when the cryptocurrencies have gained so much of limelight, Jim Hoffer, founder and managing director at Hoffer Financial Consulting, shares some wonderful insights into how and why cryptocurrencies became so much prominent and huge financial and banking institutions are using all their might to stop them.
It all started when the big-daddy of Wall Street and CEO of JP Morgan Chase Co, Jamie Dimon, went out openly criticising Bitcoins by calling it a big “fraud” and its investors as fool. Jamie’s words were soon echoed by several other prominent figures from the world of finance and in not time the cryptocurrency market witnessed a huge sell-off with Bitcoin prices taking a 10% dive. Jamie Dimon recently hit out Bitcoin investors again by calling them stupid.
However, the believers and supporters of Bitcoins didn’t allow the negativity to last for long, and after a week later, the price again resumed to its original levels and started to inch towards new highs. Looking to this overall scenario, Jim Hoffer believes that if cryptocurrencies are here to maintain a steady growth, banks of Wall Street are going to face a stiff competition ahead.
Recently, the famous Stock Market investor, Warren Buffett claimed “Bitcoin as a Bubble”
Cryptocurrencies have posed a big threat and challenge to the traditional way of centralized transactions banks offer. The decentralized way of operation by cryptocurrencies have made cross-border payments faster and at reduced costs.
The birth of bitcoin dates back to the aftermath of 2008 financial crisis wherein the adoption of digital currencies was necessitated by the failure of traditional banking systems in order to protect the interests of investors and depositors.
Blythe Masters, the CEO of Digital Assets Holdings, during his interview with the Wall Street Journal, he said that the rise of digital currencies such as Bitcoin is a “principled” response to the financial crisis of 2008. Masters says that the key reason for such a fast adoption of digital currencies is its decentralized way of operation without any intervention from the central banks.
The 2008 financial crisis stems from the failure of monetary policies by the US central banks which made a mistake of holding the Fed rates at extremely low levels thereby creating a housing bubble. This low rates resulted into excessive lending eventually spiralling massive defaults and pushing it towards the financial crisis.
The 2008 financial crisis is not a case in isolation. The Great Depression of 1929 is also attributed to the failed monetary policies of federal reserve by not printing enough money between 1930 and 1933. Many have argued that the centralized banking system have always been playing to the tunes of Wall Street bankers. The digital currencies have provided an excellent decentralized modus operandi wherein the control now has been shifted into the hands of users with banks no longer required as financial intermediaries.
Moreover, with central banks having little control over the working of cryptocurrencies, they will be forced to keep up and innovate with the new technology adoption. If the force to innovate they will be forced out of the system eventually and so they can’t rely on bailout packages.
Jim believes that the increasing investor-trust in cryptocurrency off lately is one of the major reasons that has been the cause of concern for banks and other financial institutions. The mastermind behind Bitcoin, Satoshi Nakamoto, has released a detailed paper in 2009 explaining how cryptocurrencies will replace the illusionary trust-concept of the banking system.
Satoshi highlights that banks too have shown vulnerable behaviour in the past which can cause a serious concern over the investor’s money they park. Moreover, Satoshi has also alleged that central banks have compromised the in protecting customer interest while protecting their own interests.
As a result, he projected this crypto-proof concept which gives equal control to all the investors wherein the chances of foul play are almost zero.
At this point of time, there is no convincing roadmap to replace banks and it might even take decades to actually witness this transition. However, it seems that such technology is a way to replace the politically dominated banking systems.
Keep in mind that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. We try our best to keep things fair and balanced, in order to help you make the best choice for you.
