As widely expected Bitcoin and crypto currency markets corrected this week and retraced from previous all-time price highs. As if waving the flag to the bull, the big bankers came out to take swings at the digital currency stating that it was both a ‘threat to financial stability’ and a ‘fraud’.
Bitcoin took a double whammy this week from the Federal Reserve Bank and Goldman Sachs chief executive. Newly-installed Fed Vice Chairman for Supervision Randal Quarles raised concerns about crypto currencies while speaking on payments systems. His main issues were how they would behave in a crisis, thoughts likely spurred by the 20% market drop in recent days. During times of economic uncertainty there would be increased demand for liquidity among bank depositors putting major financial institutions under strain.
Being decentralized Bitcoin and cryptos have no controlling central authority or bank and are exchanged using encryption. One of his claims was that the currency or asset was not backed by other secure assets and therefore had no intrinsic value. Quarles went on to warn “While these digital currencies may not pose major concerns at their current levels of use, more serious financial stability issues may result if they achieve wide-scale usage.”
This would pose a very real threat to financial institutions if crypto currencies could not be exchanged for fiat (US dollars) at a stable exchange rate during times of adversity. Without directly making reference the implication is that crypto exchanges receiving fiat are not likely to have the reserves of them to pay out if the majority of their customers want to sell at the same time.
Goldman Sachs CEO Lloyd Blankfein also waded in with “Something that moves 20% [overnight] does not feel like a currency. It is a vehicle to perpetrate fraud.” This echoes earlier comments by JP Morgan boss Jamie Dimon who described Bitcoin as a fraud that would ultimately blow up, stating it was only fit for use by drug dealers, murderers and North Koreans. Later reports emerged accusing him of market manipulation.
In the same week that Nasdaq made moves to allow Bitcoin futures trading Goldman Sachs stated that they did not need or want a Bitcoin strategy, citing volatility and lacking in liquidity as the reasons. Additionally Deputy Governor of the Bank of England, Sir Jon Cunliffe, said that crypto currencies were way too small to pose a threat to the global economy.
Decentralized crypto currencies are often seen as a threat to large financial institutions and banking bosses who rake in millions of dollars in profits from the control and manipulation of other people’s money.