Banks – can cryptocurrencies become mainstream currency

Their growing awareness is leading more people to speculate that cryptos may one day become mainstream currency. 

Enough investors are also pondering the threats that cryptocurrencies may pose to conventional banking models.

We are sceptical about the prospect of cryptos as mainstream currency.

It is worth revisiting the origins of Bitcoin. 

Two key tenets behind the creation of Bitcoin were that currency should be decentralised and that transactions should be anonymous. 

For these reasons, Bitcoin has resonated strongly with libertarians.

However, these two tenets are what we see as the big hurdles to cryptos like Bitcoin becoming mainstream as mainstream currency would require centralisation and a larger degree of transparency to enable adequate regulation.

It is also difficult to envisage a world reliant solely on digital currencies as transactions would always require the availability of electricity. 

For these reasons, we believe much of the excitement about the prospect of cryptos as mainstream currency is unfounded.

However, some of the concerns about the threat that cryptos pose to the banking system are legitimate.

Cryptos can already be used to transfer money around the world simply using digital wallets, and this poses a threat to the international transfer and foreign exchange income streams of the banks. 

However, cryptocurrencies are currently a more costly way to transfer money as they are still relatively illiquid currencies.

The case can be made that as cryptos become more liquid, they will pose more of a threat to certain income streams of the banks.

However, the banks are already waking up to this threat and focussing on building out their own distributed ledger technologies to enable more efficient and lower-error international transfers.

At the moment, Australian bank customers generally have to rely on telegraphic transfers when transferring funds to an offshore bank account.

This is a method which is costly for the customer and also inefficient.

We believe the banks are also dealing with the threat that cryptos pose to their foreign exchange income streams by refusing to bank cryptocurrency exchanges and businesses that deal with Bitcoin, with the reason provided for this refusal generally being related to Anti Money Laundering  and Counter-Terrorism Financing  risks.