Martin D. Weiss and Juan M. Villaverde, writing in Weiss Cryptocurrency Ratings, argue that legislative changes being made by the current US government demonstrate that the eventual usurping of the banking system by cryptocurrency is an inevitability.
Weiss Ratings was founded in 1971 and provides ratings on American insurance companies, banks, credit unions, stocks, ETFs and mutual funds – around 55,000 institutions and investments in all. It began rating cryptocurrencies in January 2018; in its first report, it gave Ethereum a B and Bitcoin a C+.
The changes referred to in the blog are being made to a piece of legislation called the Volcker Rule.
This rule is part of the Dodd–Frank Wall Street Reform and Consumer Protection Act. The latter was passed by the US Senate in 2010 in response to the financial crisis of 2008. The crisis is generally accepted to have been caused by financial mismanagement on the part of large corporations, which was at best irresponsible and at worst criminal. The sheer size of many of these corporations meant that governments were forced to bail them out using taxpayer money. The Dodd-Frank Act strengthened the American government’s power to supervise and punish these companies.
The Volcker Rule was a later addition which restricted the ability of corporations to engage in speculative investments for their own profit using their customers’ money. Weiss and Villaverde say that the current US government is preparing to loosen these restrictions, at a time when “American companies just posted one of their worst 100-day returns since 2000.”
They argue that the lessons of the financial crisis have not been learned – specifically, that it is dangerous to rely too heavily on enormous companies while allowing the employees of said companies to gain enormous rewards from juggling risky financial derivatives using their customers’ money.
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In the West, people continue to deposit money at these banks because they need somewhere to store their money; the fact that this money is then used by the bank to gamble is “an uncomfortable truth” which only becomes clear in a crisis. In contrast, many people in Third World countries shun banks completely because mismanagement there is far more blatant.
They argue that cryptocurrency is the inevitable solution to these issues because it offers an alternative to the banking system that people are forced to use because of its monopoly.
According to Weiss and Villaverde, the only things that are preventing the popular adoption of cryptocurrency are price volatility and education. When these obstacles are overcome, the writing is on the wall. They write: “Unless they adapt to the cryptocurrency revolution, it’s hard to imagine a world in which banks in their current form retain custody of people’s assets. And it’s easy to imagine one in which crypto platforms disrupt banks like Uber or Lyft disrupt taxis.”
Banks are more trustworthy than cryptocurrency
Meanwhile, in Spain, the governor of that country’s central bank has warned that cryptocurrency presents more risk than reward, according to Europa Press.
Luis María Linde, governor of Banco de España, said in a speech at a meeting of financial leaders: “In my opinion, their current use presents more risks than benefits: they have low acceptance as a means of payment, suffer extreme volatility, present multiple operational vulnerabilities and have been related to fraudulent or illicit activities in many cases.”
He said that while blockchain technology has potential, tokens are “spurious novelties that do not provide significant improvements and that should be tackled as soon as possible”.
In April, Banco Bilbao Vizcaya Argentaria, Spain’s second-largest bank, issued a €75 million loan to a corporate client using blockchain technology, becoming the first financial institution in the world to do so. The transaction was processed on the Ethereum blockchain.