Towards the end of a summer in which Bitcoin’s price grew more than threefold, Jamie Dimon (the CEO of one of the world’s biggest banks, JPMorgan Chase) reiterated his criticism of Bitcoin and cryptocurrency in general in the midst of a series of Bitcoin price drops.Earlier this month he took aim at Bitcoin, labelling it a “fraud”, saying that he would fire any of his employees he found trading in it. Dimon was widely criticized by both the crypto community and mainstream channels, but on Friday he doubled down stating that cryptocurrencies are made ”out of thin air” and he foresees government crackdowns.Dimon also reiterated his interest in the Blockchain ledger technology that underpins Bitcoin and other cryptocurrencies. This contradiction is characteristic of the financial industry. Some industry leaders have criticized cryptocurrencies (often in a defensive and derogatory way), while at the same time others have been forced to recognize the potential impact of the developments.The cryptosphere’s relationship with the financial establishment will have a big impact on the success of cryptocurrencies. Banks being on board would spur adoption by retailers (see the recent rumours about Amazon and Bitcoin). Financial insiders’ opinions could impact government attempts to control the crypto industry (which Dimon alluded to). Crypto investors, entrepreneurs, and anyone with an interest would do well to monitor how banks treat crypto in the near-future. Here are some noteworthy developments involving major banks.
The Good: Finance’s opinion of blockchain
One aspect of crypto that the banks have reacted to with enthusiasm is the wider applications of Blockchain technology. It can now be expected that almost all major financial institutions are involved in the technology in some way. Immutable ledger technology (the core aspect of a blockchain – meaning a database of records that is threaded together to make it impossible to alter) is being adopted by the finance establishment to solve many problems in finance.For example, a blockchain transaction requires fewer verifications, making it faster. A blockchain-powered database is less vulnerable to fraud and hacking. Smart contracts (like transactions with built-in real-world triggers) are very useful in trading and insurance in terms of efficiency, and the transparency of blockchain transactions is generally useful for preventing money laundering.
The Bad: Trepidation and doubt
Aside from the adoption of blockchain technology, many of the comments from financial industry insiders regarding cryptocurrencies have been negative. Renowned investor Howard Marks recently called it a “bubble”, while financial behemoth Citigroup poured cold water on the benefits of crypto by saying the existing payment infrastructure in finance is efficient enough without cryptocurrencies. Yet, even these naysayers have reluctantly described the potential benefits. Marks backtracked on his statements recently, but still says he won’t invest. Citigroup also said that banks should not fear cryptocurrencies but instead embrace them.Still, for every banker coming around to the idea of crypto, there seems to be another like Dimon calling it a fraud. Crypto is designed to succeed without the approval of bankers, but any investor should look to the impact of the Chinese government’s recent statements for proof that crypto is not invincible. Hopefully more developments lead to a continuation of mainstream acceptance of cryptocurrencies.