Each year, Bitcoin continues to grow in stature. Bitcoin is going mainstream by every metric — financial value, adoption rates, transaction volume, you name it.
But not everyone’s happy Bitcoin adoption is growing. In particular, the banking industry feels threatened by bitcoin’s rise and continues to wage war on the cryptocurrency.
That banks don’t like Bitcoin shouldn’t be a surprise. Satoshi Nakamoto’s invention is the greatest disruption to the age-old monetary system in decades. As a peer-to-peer network for creating and exchanging value, Bitcoin may render banks useless.
To protect their position, banking institutions have resorted to the classic tool of warfare: propaganda. By spreading misinformation, banks hope to discredit Bitcoin — reducing public adoption and encouraging stricter regulation.
A (BRIEF) HISTORY OF BIG FINANCE’S PROPAGANDA WAR ON BITCOIN
From the onset, Big Finance must have realized Bitcoin could potentially disrupt the banking system. But they chose to believe its use would remain restricted to drug dealers, computer geeks, cypherpunks, libertarians and other fringe elements.
But as cryptocurrency adoption grew, especially among institutional investors, panic spread in the banking system. For the first time, the possibility that this “magic internet money” may displace banks was real.
Thus, banks launched a coordinated effort to discredit cryptocurrencies. Bitcoin was and is a favorite target, given its status as the world’s first and most popular cryptocurrency.
In 2014, Jamie Dimon, billionaire President and CEO of JPMorgan Chase, America’s largest bank, declared Bitcoin “a terrible store of value” at the World Economic Forum in Davos, Switzerland. However, that didn’t stop the state of New York from issuing licenses to Bitcoin exchanges the following year.
Dimon followed up with his criticism of bitcoin in 2015, saying the cryptocurrency would never receive approval from governments. In his words, “No government will ever support a virtual currency that goes around borders and doesn’t have the same controls.”
Not satisfied, the JPMorgan Chase supremo launched his biggest attack on Bitcoin yet at the 2015 Barclays Global Financial Services Conference. Not only did he call Bitcoin a fraud similar to Tulipmania, but he also threatened to fire anyone who traded Bitcoin via his company.
Dimon isn’t the only Big Finance stalwart who has tried to undermine Bitcoin. President of the European Central Bank Christine Lagarde has also been critical of Bitcoin in the past.
At a Reuters Next Conference, Lagarde branded bitcoin “a highly speculative asset,” adding that it has been used to conduct “some funny business and some interesting and totally reprehensible money laundering activity.” This is even as the European Central Bank was considering launching its digital currency called the digital euro at the time.
The ECB, too, has often lent itself to the anti-Bitcoin propaganda campaign. In its 2021 Financial Stability Review, the apex banker compared surges in bitcoin’s price to the infamous South Sea Bubble. “[Bitcoin’s] exorbitant carbon footprint and potential use for illicit purposes are grounds for concern,” it added in the report.
Even the world’s largest financial institutions have also joined in on the anti-Bitcoin party. For example, the World Bank refused to support El Salvador’s plan to adopt bitcoin as legal tender, adducing “environmental and transparency shortcomings” of the cryptocurrency. The International Monetary Fund (IMF) also urged the Latin American nation to drop Bitcoin early this year.
Of course, there are many, many more instances of old-money institutions sowing doubt and spreading misinformation about Bitcoin. Nevertheless, these statements all point to the same conclusion: banks hate Bitcoin and will stop at nothing to discredit it.
“BITCOIN IS BAD, BLOCKCHAIN IS GOOD”
Some financial players have taken another tack in their disinformation campaign. This involves criticizing Bitcoin but praising the underlying blockchain technology that powers the system.
Banks see the potential of blockchain technology to revolutionize payments and want to co-opt the technology for their benefit. For example, JPMorgan Chase, the avowed Bitcoin critic, has created a cryptocurrency called “JPMCoin” running on its Quorum blockchain.
Central banks have also touted blockchain’s capability to power central bank digital currencies (CBDCs) — cryptocurrencies issued and backed by governments. Such assets are pegged to a fiat currency, like the dollar or euro, much like a stablecoin.
The Bank for International Settlement (BIS) ripped into cryptos in a June 2021 report, describing them as speculative assets used to facilitate money laundering, ransomware attacks and other financial crimes. “Bitcoin, in particular, has few redeeming public interest attributes when also considering its wasteful energy footprint,” the report declared.
Ironically, the BIS advocated for CBDCs in the same report. Here’s an excerpt:
“Central bank digital currencies represent a unique opportunity to design a technologically advanced representation of central bank money, one that offers the unique features of finality, liquidity, and integrity.
Such currencies could form the backbone of a highly efficient new digital payment system by enabling broad access and providing strong data governance and privacy standards based on digital ID.”
The “Bitcoin bad, blockchain good!” line has become the favorite refrain of banks and fintech operators in response to Bitcoin’s popularity. As always, this argument misses the point.
Without Bitcoin’s decentralized architecture, blockchain-based payment monetary systems are useless. Permissioned blockchains like Quorum suffer from centralization and single points of failure — problems Nakamoto sought to correct by creating Bitcoin.
The same issues plague CBDCs. As I explained in a recent article, centralized control of a digital dollar or pound causes the same problems witnessed with fiat currencies. With central banks controlling every inflow and outflow of money, it’d be all-too-easy to conduct financial surveillance, implement unpopular monetary policies and conduct financial discrimination.
A bigger problem with this line of argument is that it fails to consider Bitcoin’s biggest strength: cryptoeconomics. Satoshi’s greatest contribution was a novel combination of economic incentives, game theory and applied cryptography necessary for keeping the system secure and useful in the absence of a centralized entity. Centralized blockchains with poor incentives are open to attack just like any other legacy system.
WHY ARE BANKS SCARED OF BITCOIN?
Traditional banks have long made money by charging users to store and use their money. The average account holder pays account maintenance fees, debit fees, overdraft fees and a plethora of charges designed to profit the bank. All the while, the bank loans out the money sitting in the account, while giving users only a fraction of the earned interest.
Bitcoin, however, poses a threat to the banking industry’s revenue model. With cryptocurrencies, there are no institutions helping users to store, manage or use their money. The owner remains completely in control of their bitcoins.
But, wait, there’s more.
BETTER AND CHEAPER TRANSACTIONS
Bitcoin makes it possible to transfer money to anyone, instantly, irrespective of the amount involved or the recipient’s location. And users can do that without relying on an intermediary like their local bank.
On average, Bitcoin-powered transactions are faster and cheaper than transactions through banks. Consider how much time it takes to process an international transfer and the hefty fees that banks charge.
Except for miner fees, people are not paying anyone else to process transactions on the Bitcoin blockchain. And amounts of any size, large or small, can be moved without the usual red tape. In less than 10 minutes, Bitcoin processes an irreversible money transfer. Banks simply cannot match that.
STORE OF VALUE
Banks help customers arrange long-term investments in gold, bonds and other assets, to secure the value of their money. And they charge a fee for custodianship, investment consulting and portfolio management.