How The Banking Industry Misjudged The Rise Of Bitcoin

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  • Since Bitcoin rose to prominence, the finance sector has been critical of cryptocurrencies, but their arguments are wearing thin
  • The “intrinsic value” argument against Bitcoin has lost credibility as investors become more educated about cryptocurrencies and their potential
  • Major banks like JPMorgan are recognizing cryptocurrencies as a threat to their business models

Since Bitcoin started its rise to prominence, the finance sector has been on edge. Not knowing how to approach the public interest in cryptocurrency has proven to be hugely problematic. In a snap reaction, the immediate response from those within banking circles was to criticize Bitcoin in an attempt to tarnish its name. Finance experts have been routinely trying to discredit Bitcoin and blockchain-related projects, pushing against the crypto market and its growing mainstream presence in the process. That being said, it has become a case of battling against the tide, as the banking industry’s tired arguments against Bitcoin have been wearing seriously thin since 2018.

Intrinsic Value Inconsistencies

When Bitcoin was first being discussed as a viable digital currency, economists immediately put forward the “intrinsic value” argument. If you’ve followed Bitcoin – or even carried a passing interest in the cryptocurrency – you will have already heard about this supposed “issue”. Various economists and even prize-winning researchers tagged Bitcoin as a hollow commodity. The claim is that the absence of intrinsic value in cryptocurrencies – including Bitcoin – make them susceptible to huge price dips and extreme volatility.

The intrinsic value argument has been suppressed over the years, largely as investors and traders have become more educated in Bitcoin and Blockchain. But, this hasn’t stopped some from returning to this argument when all other criticisms of Bitcoin come up short. Bruce Flatt (Brookfield CEO) – a man that controls around $250 billion in assets – was one of those who leaned on this questionable argument following the 2017 bull run as a reason for why Brookfield has avoided the crypto market:

It [Bitcoin] has no intrinsic value. I don’t know what it is. But it has no intrinsic value in our definition of intrinsic value. If someone else wants to speculate on it or invest in it, it’s for them. It’s not for us.

The intrinsic value issue has become such a flimsy argument. During Bitcoin’s early years, largely due to lack of knowledge, it might have been able to deter some away from the cryptocurrency market. The reality is that there really isn’t anything tangible to it, with many leading analysts actually coming out to discredit these claims.

Finding Big-time Backers

It sounds crazy, but no asset – from gold to coins and paper currency – carries intrinsic value, technically speaking. In many ways, Flatt’s claims against Bitcoin can actually be used against any asset that is floated via any major market. Tom Lee has become an authoritative voice in the crypto-sphere, to the point where we’ve regularly published his words via the FullyCrypto blog. As a leading Wall Street hedge fund strategist, his opinions on the intrinsic value argument have become notable.

Stating that no asset in the world has intrinsic value, he feels that the reason this argument surrounds Bitcoin is generational, “If you ask a baby boomer, ‘Can you justify the value of anything that’s a digital business?’ they probably don’t accept that Facebook, Google, Netflix, Amazon, Apple, these are the largest companies in the S&P 500 and they’re primarily digital businesses built almost purely on digital trust.”

Bubble Myths Rumble On

The intrinsic value argument is commonly used as a means to explain why the cryptocurrency market isn’t “legitimate”. But, it’s not the only discredited claim that’s been thrown at Bitcoin, as the dreaded term “bubble” has also been used. Now, we’ve previously addressed this argument at FullyCrypto, proving that the idea of a Bitcoin bubble really isn’t something to worry about.

However, as Bitcoin continues to alter the way traditional currency is viewed, the bubble claims have only become more aggressive. Paul Singer – a leading American hedge fund manager from Elliott Management – shocked many by saying that the cryptocurrency market is a “fraud”, a “bubble”, and represents “limitless ignorance of the human race”. His full statement is extreme to say the least, “But is it not glorious that when the equivalent of nothing attracts priests and parishioners who run up the price, the very willingness of the mob to buy it at higher and higher prices is seen as validation of the thing, rather than an indication of the limitless ignorance of swaths of the human race?”

It’s absolutely stunning to hear someone of a supposed respected standing attack Bitcoin and those involved with Bitcoin in such a fashion. But, while Singer may have taken a hyper-aggressive approach to bite back against Bitcoin’s rise in prominence, the holes in his argument are rather obvious. Anyone and everyone – including those at Elliott Management – will be aware that the free market is built around fundamentals of supply and demand.

The “mob” that Signer mentions are cryptocurrency investors, who obviously see value in paying the current price for the commodity – essentially seeing value. Both major and minor corrections in the market – while notoriously volatile – prove that the cryptocurrency works on supply and demand, as it means that investors are simply refusing to meet the value put forward by sellers. Effectively, this is how every major market works, which shows that the model behind cryptocurrency is basically the standard.

Feeling the Fear

There is a certain degree of fear surrounding the cryptocurrency market, with this being felt by leading global banks. JPMorgan – the world’s biggest investment bank with a $457 billion market cap – has gone on record to admit that Bitcoin and various altcoins are a threat to the bank’s business model. An annual report of JPMorgan revealed, “Both financial institutions and their non-banking competitors face the risk that payment processing and other services could be disrupted by technologies, such as cryptocurrencies, that require no intermediation.”

When a reputable name like JPMorgan feels that it must address the cryptocurrency market within its annual report, it’s apparent that its presence is growing. It’s viable to consider Bitcoin and other cryptos to be a threat to most banks. This is because they target the offshore banking industry, something that decentralized and open-source cryptocurrencies can tap right into. Allowing anyone to transfer large amounts of money at a faster speed and with lower fees, cryptocurrencies are able to deliver a flexibility that the infrastructures of large banking institutions don’t have the power to match.

Good Signs All Around

The fact that the banking industry is on edge regarding Bitcoin says plenty about how it misjudged its rise. The sheer failure of the financial sector to understand its potential has left the door open for it to become a true domineering force, with the cryptocurrency market now having impressive long-term growth. This is certainly a positive sign, but that hasn’t stopped leading firms from looking to bash Bitcoin at every chance. Just look at Allianz Global, Europe’s biggest insurer, the company recently told its client base that Bitcoin was “worthless”, once again heading back to the intrinsic value argument.

Stefan Hofrichter (Allianz Global Head of Strategy and Global Economics) said, “In our view, its intrinsic value must be zero. A Bitcoin is a claim on nobody – in contrast to, for instance, sovereign bonds, equities or paper money – and it does not generate any income stream.” He also claimed that the mythical and unsubstantiated Bitcoin “bubble” would eventually burst, but said its global impact would be minimal, “Bitcoin’s demise would have few spillover effects on the ‘real world,’ since the market for this cryptocurrency is still quite small in size. As a result, we believe that the risks to financial stability stemming from bitcoin are negligible — at least as of today.”

Allianz Global is making some ridiculous claims regarding Bitcoin, but the simple math of the situation reduces these claims to dust. There is absolutely no chance of a $570 billion market being reduced to zero, because – as already stated – sheer supply and demand make this illogical.

Bitcoin Continues to Beat the Doubters!

There is no denying that the banking industry underestimated Bitcoin and what it is capable of. However, it’s still yet to change its stance, pursuing with a Bitcoin-bashing rhetoric that continues to lose ground. It’s reached a point where the baseless and unbacked condemnation of Bitcoin and the crypto market has become almost tiresome. This is especially true when it comes from analysts without a working knowledge of the technology, structure, and economic influence of cryptocurrencies.

Bitcoin might have had its doubters, deniers, and attackers, but the reality is that – in spite of a lack of banking industry backing – it’s a market that’s certainly here to stay!