We typically think of crypto as a threat to the traditional financial system, and therefore to the current industry incumbents and institutional players – from JP Morgan and HSBC to Central Banks and the Federal Reserve.
However, this over-simplified perspective ignores the fact that the current industry incumbents are actually among the blockchain technology’s biggest investors, and that some Central Banks have been inspired by crypto to explore the possibility of Central Bank-issued digital currencies.
So, is crypto a threat or an opportunity for these giant companies and institutions?
The answer is both.
Blockchain technology is an opportunity for traditional players because it has the potential to eliminate bottlenecks that exist within the current financial paradigm. Visa is exploring blockchain as a way to facilitate faster cross-border transfers, while Deutsche Bank believes they can aid faster clearance of securities trades.
With few exceptions, the opportunities that traditional players see in adopting blockchain technology are those which would improve back-end processes, creating monetary savings.
The position of traditional incumbents who see blockchain technology as an opportunity rather than a force of disruption feels a little similar to the position of Blockbuster CEO Jim Keyes in 2008, who famously said:
"Neither RedBox nor Netflix are even on the radar screen in terms of competition."
They can imagine new technologies as complimenting their existing services, but not disrupting them. But blockchain and crypto-native startups, like Netflix and the Internet, are a genuinely disruptive force and they’re not going away.
However, the fact that crypto is a threat does not mean that traditional institutions necessarily view it as such. In fact, many of them remain very sceptical.
Earlier this year, the research bureau of the People’s Bank of China published a paper written by one of its employees on “What Blockchain Can Do and What it Can Not”. The paper’s central conclusion was that cryptocurrencies will not replace the fiat monetary system, but that blockchain technology itself holds promise.
In other words: Blockchain, not Bitcoin. Sound familiar?
More recently, Nic Carter – Cofounder of coinmetrics.io – took to Twitter to publish his account of the sentiment of talks held at DC Fintech week at the International Monetary Fund (IMF). One panel was made up of central bankers – Nic summed up their sentiment like this:
“– they are laser focused on central bank digital currency
– they have 0 concern about BTC/crypto threatening dominant monetary regimes
– general view that everything can be regulated
– do not hate crypto, just indifferent”
This echoes the sentiment of the paper from The People’s Bank of China – central banks are confident in the superiority of fiat and aren’t worried about the potential of cryptocurrencies to topple it.
If this position sounds overconfident, that’s because it is. The fiat monetary system is failing, and it’s not clear if things can be made better within the system.
John Hopkins University economist Steve Hanke believes that prices in Venezuela are doubling every 52 days, having risen by 12,875% during 2017.
Inflation and quantitative easing – flooding the economy with more cash to stimulate growth, as was done throughout the West in the early 2010s – cause asset price bubbles, an upwards transferral of wealth from the many to the few and steal wealth from savers and wage workers.
The national debt of the US is $21.6 trillion, and it’s ordinary workers who will have to pay this off as the the value of their salary is inflated away.
Fiat is failing, and crypto is offering a genuine alternative. The positive thing for crypto believers is that what central banks think probably doesn’t matter too much.
Disruptors don’t need permission from incumbents. Disruptors innovate to better meet people’s needs, and incumbents simply see their relevance decline as the new world is created around them.