With Bitcoin surpassing a historic $5000 today, cryptocurrency remains a major talking point in the financial marketplace, particularly as Bitcoin continues to benefit from increased regulations and a larger number of viable applications.
So while China may have taken the decision to ban initial coin offerings pertaining to Bitcoin and similar digital currencies, the attitude in Europe remains far more relaxed. Banks have been reluctant to embrace the technology, however, in the fear that cryptocurrency and underlying innovations such as blockchain will destabilise the financial markets.
The questions that remain are whether or not this represents an oversight, and whether the European Central Bank (and similar institutions) will take advantage of cryptocurrency technology?
The Changing Financial Landscape and How Banks Should Adapt
Ultimately, the fears about disruption have been largely unfounded, primarily because fintech innovations such as Bitcoin have failed to change the basis for competition in regulated markets. Instead, these technologies have triggered a marked improvement in customer service, while reducing commission costs and the value of payments.
This means that rather than struggled with sustained volatility and disruption, early adopters of this technology (namely non-banking financial lenders and peer-to-peer platforms) have been able to target profitable areas of operation and leave banks in a position where their margins are squeezed. Beyond this, the service, usage and financial advantages delivered by cryptocurrency could begin to make banks appear out-dated, causing them to lose custom and long-term revenues.
Bitcoin has also transformed the way in which banks consider regulation, as more stringent rules and guidelines have helped the product to gain traction in various markets. Historically, bankers believed that regulatory measures made financial services unappealing for new entrants and innovators, but this is no longer the case. Instead, regulation lends credibility and viability to concepts such as Bitcoin, and this is something that banks will ultimately have to get to grips with.
Why Central Banks will ultimately be forced to Leverage Cryptocurrency
Ultimately, the rise of cryptocurrency and similar technologies will make banks less relevant and profitable over time. To avoid this, banks must surely act now, and take steps to integrating blockchain and even establishing a regulated, cryptocurrency exchange market. This would run alongside classic financial entities such as the forex market, creating greater flexibility for traders and making diversification easier than ever.
Remember, banks have already seen their importance diminished by the rise of asset managers, who themselves have leveraged technology to provide a flexible and affordable financial service to clients. These types of service were once exclusive to banks, but as technology has changed so too customers have been encouraged to change their behaviour.
If this trend is not to be continued in other areas, banks will need to proactive and visualise the role of Bitcoin in the future.
