Following bitcoin’s drastic fall in price in January 2018, many are breaking out the champagne over its sudden rise back to $11,000 USD. It’s a major move for die-hard investors but, as we’ve come to realize, the threats of a crash are always lurking in the shadows, and should one ever come along, it seems retail investors would deal with the hardest repercussions.
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Regulation Prevents Influence?
Interestingly, many financial and government regulators are consistently studying cryptocurrencies to get an idea of the risks they pose to traditional banking institutions. However according to a new report by S&P Global Ratings, finance houses and their relative markets are likely to be largely unaffected should a cryptocurrency crash occur.
“At this stage, we think that retail investors would be the first to bear the brunt in the event of a collapse in cryptocurrencies’ market value. We expect rated banks to be largely insulated, given that their direct or indirect exposure to cryptocurrencies appears to remain limited. For now, a meaningful drop in cryptocurrencies’ market value would be just a ripple across the financial services industry, still too small to disturb stability or affect the creditworthiness of banks we rate.”
The Blockchain: Weaving Its Way Into Retail
Right now, the retail market is largely exposed to bitcoin and related altcoins. The regular integration of blockchain technology and growing acceptance of cryptocurrency as a payment means for goods and services brings the retail market closer to digital currency influence, which means that should problems occur, or if prices fall dramatically as they did last month, retailers would likely experience the hardest consequences…
But financial institutions have very limited interaction with digital currencies. Major players like Bank of America and Citibank have already told customers they will not permit digital currency purchases either through credit card or bank account transactions.
Additionally, traditional financial enterprises do not engage in cryptocurrency trading, nor do they offer virtual assets the way an online exchange might. Thus, the influence digital currencies bear on traditional banks is rather slim.
Guys at the Top Need to Relax
The report’s authors felt regulators need to lighten up when it comes to worrying about what risks they will present, going so far as to even suggest that cryptocurrencies need banking authorities rather than vice versa to enjoy a solid run:
“We believe that the future success of cryptocurrencies will largely depend on the coordinated approach of global regulators and policymakers to regulate and enhance market participants’ confidence in these instruments.”
While some believe that bitcoin’s blockchain technology could potentially affect finance in a positive manner — granted it continues to adapt and change — others remain bearish. Former director of the Office of Management under Ronald Reagan David Stockman, for example, believes the hype surrounding cryptocurrency is not based on truth, and could thus end in disaster:
“It is basically a class of really stupid speculators who have convinced themselves that trees grow to the sky. It will burn out in a spectacular crash. All these latter-day speculators will have their hands burned to a crisp, and they will learn the proper lesson.”
Is bitcoin bound to gain influence on traditional banking in the future, or is the report valid? Post your comments below.
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