BNP Paribas: Bitcoin Will Fail Because it Lacks Characteristics of Traditional Banking

According to the UK’s Telegraph, international banking giant BNP Paribas have issued a report on the future of Bitcoin. For them, widespread adoption will be limited by cryptocurrencies’ deflationary nature, and the fact that they lack a “lender of last resort.” The bank claimed that cryptocurrency could pose risks to individual nation’s monetary policies too.

Interestingly however, the report focused on the hypothetical issues that could emerge if Bitcoin was to be adopted by a nation as their sole currency. This marks a change from the standard “it’s a bubble” comments usually hailing from the world of institutional banking. However, their assessment of the implications of Bitcoin achieving what would be the holy grail for a currency is far from a glowing one.

The report highlights the issues that could arise if consumers used cryptos for mortgages and other such financial products. It argues that there would be no security in the event of a financial crisis. For them, a central institution capable of overseeing such services and products, and bailing consumers out if necessary, is vital.

For cryptocurrency advocates, the lack of centralised authority is Bitcoin’s biggest selling point. However, BNP Paribas claimed that without an institution such as the UK central bank, there would be no one to protect consumers’ savings and mortgages in the event of a similar financial crisis as 2008.

The report also argues that the general uptrend in its price over the lifetime of Bitcoin does not make it a reliable store of value. For the banking behemoth, the lack of regularity in the exchange of goods and services for Bitcoin means it also lacks “symbolic value in real terms”.

They also raised their concerns about the deflationary nature of Bitcoin. This can have all kinds of negative effects on an economy, potentially leading to complete financial stagnation. What was worth 7BTC in January, is now worth 1BTC. This leads to a situation where it makes sense to save rather than spend. Magnify this across the entire economy and businesses generate less revenue. It can also lead to lay offs if wages don’t fall in sync with deflationary pressure. Bosses simply can’t afford to continue paying their staff and are forced to let them go.