SPRINGFIELD, Mass. (WWLP) – Crypto businesses are on the verge of being pushed out of the United States unless other tactics are addressed. 22News spoke with AIC economic professor, John Rogers about how the US is in a twist over potential threats to de-bank digital asset businesses.
Currently, Rogers sees the biggest problem as the way banking currencies are designed. According to Rogers, Bitcoin was created 10 to 12 years ago to get around the banking system by using something known as a locking chain, also referred to as a distributed lecture. This means that rather than all transactions being processed by a central clearing house, your credit card is processed by a bank such as City Bank or JP Morgan and it gets cleared here, so no one knows about them. It is impossible to get back into the wallet after the transaction is over.
Now, Roger says, the banking system works differently, in a central way, allowing the government and central authorities. These financial transactions are closely monitored by the central banks and federal reserve. For many reasons, people have been investing heavily in these currencies. “For example, almost everyone uses PayPal which is a blockchain mechanism for making payments, so you don’t have to use your credit card, and goes directly into PayPal. So those are out there, explains Rogers. “I think the problem the banking system and Federal Reserve, which is responsible for the banking system has been finding it difficult to control this or even police it.”
This is what happened with these bank failures in Silicon Valley and Signature Bank. They had built up investments in these digital currencies that couldn’t really be monitored, and these currencies are unstable. The price of Bitcoin, which is the most important or most widely used cryptocurrency, has jumped all over the place.
As a result, many people have been burned by speculation. As it goes from $30,000 to $10,000, then up to $20,000. “People make money and lose money and that was the Blankfein Fried’s who was arrested and responsible for this,” explained Rogers. “People were saying why didn’t people know about this or why wasn’t it regulated, but it couldn’t be regulated”
Thus, banks are facing this problem and cryptocurrencies played a key role in the most recent banking crisis. Rogers believes that is what people are concerned about, and some banks have stated that they do not wish to deal with these digital currencies.
However, many people believe that could be the wave of the future, so the banking system will not be able to adapt to it. It’s unclear what will be the future of the banking system, but Roger predicts it might just have digital wallets and utilize PayPal-style processing, and we may not even need banks, so it’s a significant turning point in the financial sector.
“I think that cryptocurrency is going to have to play a role for many reasons first of all their more convenient, less expensive, a lot more privacy, which a lot of people are looking for, but I also think they have a lot of dangers, their much more difficult to regulate and be used for the original Bitcoin and actually developed for the Silk Road,” he said. “I think people, in the long run, are a little concerned about the role of the US dollar because the US dollar is now the reserve currency all over the world.”
Rogers adds for the US economy our strongest is that we have a currency that is most respected, which gives us a lot of weight in the global financial markets, which could be threatened by this in the long term, but Rogers sees nothing will happen in the short term. If anything In the long term it could be a trend that begins to weaken the Reserve power of the U.S. dollar.
“Well, if we say we just don’t like these cryptocurrencies, we are not going to allow people to deal with them and forget to tell the banks to not accept them as collateral or bank up deposits.”
There is no doubt that the US is considered a hub for financial innovation, our greatest strength. When people say we have nothing to do with it, the effectiveness of the US financial system is diminished, Rogers noted.
“People need to realize that they are dealing with currencies that do not have the same value and that these markets are prone to instability,” he addresses. “It is risky for banks to use these cryptocurrencies until now.”
The corruption refers to the platform that Sam Bankman-Fried and other Ponzi schemes use to encrypt crypto until they are caught.
“These are volatile policies and so if you are a bank like silicon valley bank and if you have some of those parts of your asset class, they may not be what you thought they were worth. As you are under pressure to back up debtors or to take money out of the bank, you must assert that we are solid here, we have if that is the case.”
Additionally, these currencies are highly volatile and therefore if you are a bank such as silicone bank, you may not find this asset class to be as valuable as you thought it was as you will be under pressure to back up those depositors who are withdrawing money from the bank and not run out of time. Assert that we are solid in this regard.
“Simply the nature of the nature, it’s a currency and it’s unstable and they are many kinds of cryptocurrencies, so it depends on which one they are talking about and inherent stability to them,” Rogers expressed. “I would distinguish between actual fraud and corruption and simply the fact that you are dealing with a new financial product that is inherently unstable because of the way it’s put together and hasn’t matured yet, and there’s a lot of different currencies and they compete with each other and they have different logic to them if Bitcoin is one of the main currencies with a high level of volatility.”
According to Rogers, there are others, such as stablecoins, that attempt to bring themselves back up, however, they have not matured yet, and their logic is different from those of the others. The crypto industry is yet to see a comprehensive framework or set of regulations be developed by the US.