As Bitcoin and cryptocurrency markets correct from their previous highs the queue of high-profile bankers lining up to discredit the digital asset gets longer. Both the Federal Reserve Bank and Goldman Sachs bosses took swipes at cryptocurrencies claiming that they were ‘fraudulent’ and a ‘threat to financial stability’.
The newly-installed Fed Vice Chairman for Supervision Randal Quarles raised concerns about how cryptocurrencies would behave in a crisis this week as markets fell by over 20%. During a speech on payments systems, he said that during times of crisis demand for liquidity among bank depositors often shoots up. This will put major financial institutions under strain.
Decentralized cryptocurrencies have no central bank and are exchanged using encryption. Quarles claimed that the ‘currency’ or asset at the center of some of these systems is not backed by other secure assets and has no intrinsic value. A warning for the future followed; “While these digital currencies may not pose major concerns at their current levels of use, more serious financial stability issues may result if they achieve wide-scale usage.”
A large challenge to the system would be posed if digital currencies could not be predictably exchanged for the US dollar or fiat at a stable exchange rate in times of adversity. It is highly unlikely that crypto exchanges receiving fiat have enough to pay out should everybody cash out at the same time.
Jumping on the bandwagon, Lloyd Blankfein, CEO of US investment bank Goldman Sachs, said: “Something that moves 20% overnight does not feel like a currency. It is a vehicle to perpetrate fraud.”
He joins the ranks of JP Morgan chief Jamie Dimon who likened Bitcoin to a fraud that would ultimately blow up, claiming it was only fit for use by drug dealers, murderers and people living in places such as North Korea. Accusations of market manipulation rapidly followed as it was rumored that he bought Bitcoin on the dips his words caused.
According to Blankfein Goldman Sachs did not need to have a bitcoin strategy, stating that the digital currency would need to be a lot less volatile and a lot more liquid to justify closer attention. “Bitcoin is not for me. A lot of things that have not been for me in the past 20 years have worked out, but I am not guessing that this will work out.”
Other banking heavyweights such as Sir Jon Cunliffe, deputy governor of the Bank of England, said that cryptocurrencies were too small to pose a threat to the global economy.
Bankers and financial institutions that profit from control of capital generally sees cryptocurrencies as a threat to their business model. A decentralized currency that is beyond the control of the few can only be a good thing for the many – providing they do their research, invest wisely, and know their limits.