The dizzying ascent of cryptocurrency prices, not to mention their ever-increasing adoption, has left many banks in the world of traditional finance with mixed feelings. Some banks such as JP Morgan Chase are coming to terms with the fact that cryptocurrencies are the future of finance. On the other hand, others such as Nordea Bank (The nordic region's largest financial institution) as well as central banks in China are doubling down on their harsh stance against Bitcoin.
A shrinking monopoly
Banks have all the reasons to hate Bitcoin.
To begin with, Bitcoin threatens the monopoly that cumbersome legacy financial systems have grown to enjoy. The bread and butter of banks around the world is the interest they generate from lending out deposits and the fees they charge for facilitating money transfers across borders.
This banking model has been the pinnacle of the banking system for centuries. The advent of Bitcoin brings a world of new possibilities that allow end-users to not only send money back and forth at lower costs without intermediaries but to also store that money on their own essentially being their own bank.
Bitcoin's peer-to-peer network levels the playing field by empowering the end-users to take control of their money such that they no longer need to deposit their money with a bank. Inspired by Bitcoin's blockchain, decentralized finance solutions that enable borrowers to access loans on a peer-to-peer network are also emerging.
Risk without incentive
Banks also hate Bitcoin as it comes with risk yet nearly zero incentive for their business model. Offshore banks and international financial institutions in particular hate opening accounts for cryptocurrency clients due to the regulatory and compliance risks of dealing with Bitcoin.
Crypto clients who use offshore banks often make large deposits that they wire to buyers for large sums of Bitcoin over the counter. This not only adds to the reporting costs and compliance issues for the banks but also comes with zero incentives as these clients withdraw the full amount of their deposits in a matter of days. Increasing concerns about Bitcoin's use in criminal activities have led most offshore banks to implement rules for how much clients can withdraw on their deposits.
Increasing adoption
Coinbase is one of the most renowned cryptocurrency wallet and exchange platforms with an astounding 56 million users. Compared to most banks, Coinbase's growing number of users poses a threat, and banks such as RBC Royal Bank of Canada, Citi, Bank of America and even Capital one have been reported to block Coinbase Bitcoin purchases.
As it seems, the war that began with the advent of Bitcoin against legacy financial systems is far from over.
