BNP Paribas Says Bitcoin Will Suffer Because It Lacks Central Bank Support
International financier BNP Paribas doesn’t believe in bitcoin’s future because the cryptocurrency lacks a lender of last resort. In its view, this will limit the widespread adoption of the digital payment universe.
Bitcoin’s Future Is Limited
According to The Telegraph, BNP Paribas believes bitcoin’s future is being stymied by a lack of central bank support. This not only carries significant risks, but will actually limit the growth of cryptocurrency outside the core investment community.
“The potential threat to central bank seigniorage, worries about money laundering, financial stability, tax avoidance and crime, all make regulatory moves elsewhere possible,” the French bank said in a note.
Although BNP acknowledged that bitcoin is probably in a bubble, it said this alone “does not mean that the bubble will burst soon.” Bitcoin has added more than 1,000% over the past year, with prices recently crossing $8,000.
The bank believes that one of the major risks facing cryptocurrencies is their inability to cope with a major financial crisis. Unlike the 2008 financial crisis, a meltdown in the crypto sphere won’t bring central bank regulators to its aid.
We’ve Heard It All Before
BNP isn’t the first major financial institution to criticize bitcoin, and likely won’t be the last. Of course, its criticism must be understood within the context of the modern day central banking system.
In other words, financial institutions rely on the fiat currency-generating machine known as the central bank to shore up liquidity when times get tough. This is what it means to be a ‘lender of last resort’. (They also receive government funding to stay afloat once they become over-leveraged. It pays to be called ‘too big to fail’.)
In a decentralized system like bitcoin, there are no banks to hold your currency. This essentially removes the notion of a bank run, rending central bank intervention less relevant.
Of course, central banking is just another system of control. It represents another layer of government that many view as unnecessary. Any system that dissolves centralized power risks being met with stern resistance from the old boys club. It therefore comes as no surprise that the heavy hitters have come out in full force against bitcoin. (Of course, they are more than happy to use the technology bitcoiners have developed over the years.)
Then again, it also bears reminding that the mainstream has become much more accepting of cryptocurrency than ever before. We are on the cusp of bitcoin futures and probably ETFs sometime in the near future. Investment banks such as Goldman Sachs are also moving closer to trading bitcoin, but are still evaluating the risks and potentials of the alternative asset class.
Bitcoin’s emergence has spawned at least a 1,000 other cryptocurrencies. Although most market participants agree that most will fail, they also sense a major paradigm shift underway in the global financial system. Combined, the market is valued at nearly $240 billion.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.