Why Banks Hate Bitcoin and Cryptocurrency
Updated August 15th, 2021
Updated August 15th, 2021
With Bitcoin gaining more and more users, banks have gained more reasons to hate the cryptocurrency. The cryptocurrency has overall changed the competition with central and local banks and national currencies. Here are some reasons why banks hate Bitcoin.
Central banks like the Federal Reserve manipulate the nation’s currency and markets by lending money (which they create out of thin air) to institutions like banks, corporations, the government. And they do this by inflating the supply and lowering interest rates. Central banks can’t directly manipulate Bitcoin because its supply is limited.
They are also not able to manipulate bitcoin to the same degree because you can’t just create Bitcoin out of thin air.
There has been some speculation that the Bitcoin markets are manipulated. With that being said this is usually done with the purpose of making money and not actually taking control of Bitcoin.
The Federal reserve for example, prevents recessions by manipulating the monetary base and the interest rates. These changes are not done outright though, as Investopedia says, The Federal Reserve is able to buy debt securities. The banks who sell these securities acquire fresh bank credit. Since the banks have more credit, they are able to lend to each other at a lower interest rate. Typically, this is the “fed funds rate”.
These lowers rates allow businesses to borrow cash at lower rates and this therefore eases up tensions in the economy. It eases up tensions in the economy because instead of going bankrupt or laying off people, businesses can instead take on more cash.
How do central banks print money? They do it by the act of “quantitative easing.” This means that the Federal Reserve buys securities from the open market like corporate bonds, mortgages, and treasuries. The monetary supply goes up as the central bank does this.
As we previously said, Bitcoin is not printable like fiat is. It is not controllable to that degree. Bitcoin is like digital gold but intangible and better in some respects. Billions of dollars of wealth are transferred every hour in the Bitcoin Network. If the majority of people start using it for business transactions, then it may be more difficult to manipulate an economy that uses Bitcoin as its central method of wealth transfer.
Central banks don’t like Bitcoin because of this. Bitcoin is an asset that is not printable like fiat. If it becomes the dominant currency, Central banks will have no choice but to relinquish their power.
A sovereigns nations currency is one way where they derive some of their power from. Take for instance the United States. One reason why the United States has a lot of international power is that the US dollar is the reserve currency. This means that it’s use is the primary way of transacting internationally and is the primary reserve held by international banks.
Half of the worlds trade is done in US dollars. Most if not all, international banks use the USD primarily. The United States also controls SWIFT, which is the main messaging system used by banks for cross border payments. The USA also has CHIPS, which is a clearing house that processes 1.8$ trillion in domestic and international payments per day.
Because the US has all these tools to their disposal, isolating a specific threat and cutting said threat from financial resources is an effective yet easy way to destroy them. It is in this way that the United States dollar is weaponized.
They do this by placing sanctions which are usually monetary fines, on countries which it does not agree with. It also sanctions institutions where the US wants to place pressure on so they can make a certain decision.
For example, over the past recent years the United States has sanctioned Iran because of their nuclear activities. One of the reasons for doing so is because it is not in the world’s (or the United States) interests to have more nuclear weapons being developed. While some of their intentions maybe benevolent (in this case it’s the prevention of nuclear weapons development), it is clear that the US dollar is a weaponizable tool.
Bitcoin Essentially takes this power away. Firstly, Bitcoin is a monetary network which can be accessed by anyone, anywhere in the world. It doesn’t matter if your ideological views are aligned with the United States or not. You can still access and use Bitcoin to its fullest extent.
The United States or any other government cannot prevent anyone from using Bitcoin or purchasing products and services with Bitcoin. Because of this, both politicians and central banks dislike Bitcoin.
Banks tend to “protect their own monopoly on regulatory and customer abuse” according to Michael Kern. This means that they don’t want to compete against bitcoin. Each day, Bitcoin is gaining more users. With the blockchain taking over, banks are becoming more useless. There might come a day when banks are no longer needed.
Generally, you need a bank to send money to people or to keep your money safe. People also get bank accounts to get debit cards which they then use to pay for goods and services. To send payments to people, wheather it be domestic or international you need a bank account.
This is one reason why some banks dislike Bitcoin. Using bitcoin effectively cuts the middleman out of the equation. Banks make money from collecting fees. As Lendup says, banks make revenue by charging fees from checking account maintenance, minimum balance, and plenty more! The more prevalent one is foreign transaction fees. With people using Bitcoin, Banks such as Wells Fargo and JP Morgan won’t be able to collect as many fees.
The beauty about Bitcoin is that you don’t need to pay foreign transaction fees, checking account maintenance fees or many other fees that most banks charge. The only fee that is required is a transaction fee. These fees typically cost anywhere from 2-5$.
Many banks charge fees for sending domestic on international payments. Previously people have sent over 1 billion USD worth of Bitcoin with a low fee of about 2$. For their foreign transactions, Wells Fargo, JP Morgan Chase, and many other banks charge a 3% or more fee. This fee grows linearly since it’s a percentage. For International Wire Transfers, most banks have a fee ranging from 16 to 35 USD.
You can also use Bitcoin to send international payments and money transfers. Instead of paying the costly 35$ fee by using Wire transfers, you can use Bitcoin and have your money available in another part of the world in minutes. It is clear that using Bitcoin for international money transfers is the better option.
With Bitcoin, banks don't have the power to shut down your account as they would if you don't pay bank fees. Not to mention how the cryptocurrency requires less fees. People can simply become their own banks using BTC, which will only result in banks losing their own business and lowering their market share.
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