Banks and Bitcoin…At Odds…Really?

According to the WSJ’s Paul Vigna, Bitcoin faces three major challenges in 2014. “Bitcoin’s Three Key Challenges in 2014,” The identified challenges or “buckets,” as the article refers to them, are regulation, adoption and volatility.  At NCFPS, we are most concerned with regulation. With regard to regulation, though government regulators at the state and federal level are listening closely to Bitcoin advocates and their tone toward Bitcoin, to date, has largely not been hostile and even hopeful, perhaps because, according to a knowledgeable insider quoted in the article, that “Bitcoin really isn’t competition for national currencies-at least not for quite a while.  It can be competition here-and-now for national banking systems.” Therefore, regulators of bitcoin might see an upside to having bitcoin come into its own as a facilitator of payments.  That’s all well and good and could represent a huge boon to the overall economy, while not posing a threat to national currencies–a win-win situation, right?  However, what about the bitcoin can be “competition here-and-now for national banking systems” part of the quote?

Well, an innovative and open mind could rightfully speculate that bitcoin might potentially offer an innovative mechanism through which banks could streamline and integrate payment systems, thus attracting to national banking systems a new type of entrepreneurial clientele and those currently outside the banking system. Right? Not so fast.

Enter J.P. Morgan’s Jamie Dimon. According to the January 23, 2014, WSJ article, “Dimon Disses Bitcoin, and Bitcoiners Diss Back,” Dimon was downright negative about Bitcoin stating the following: “It’s a terrible store of value…[i]t could be replicated over and over.”  The article also notes that Dimon suggested that bitcoin “doesn’t have government backing, and it’s been used by, yes, drug traffickers.” Dimon parted with a salvo that suggested that the end of bitcoin will come when government regulations applicable to virtual currencies are enacted.

If one takes Dimon’s statements to their “logical” conclusion, the government should ban cash (as its commonly utilized by drug traffickers) as well as all types of various and sundry other everyday items that might be used for illegal purposes.  While we are at it, why not get rid of banks? After all, banks do serve as a major conduit for money laundering.

Preposterous? Of course it is.

Equally preposterous, however, is Dimon’s notion that regulation will be the end of bitcoin.  If bitcoin is to ultimately thrive, regulation is what must happen. With regulation comes the legitimacy that would-be financial backers look for.  With regulation comes, at least a sense of, predictability.  Admittedly, when bitcoin regulation begins to appear, the dust will not immediately settle.  Actually, the dust is likely to start flying.  Many new questions will arise precisely because of the regulations.  This, of course, is expected and certainly would be in accordance with the experience in other newly regulated arenas.

Perhaps, regulation is what scares Dimon and his ilk.  London Whale anyone?

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