Founder of Adamant Capital: Bitcoin Exchanges, Custodians Could Fail Like “Pre-1914 Gold Banks”

Bitcoin has seen a lot of success in the last couple of days, pulling analysts out of the woodwork with their own comments about what makes the industry last.

The founder of Adamant Capital, Tuur Demeester, suggested that the exchanges and custodians involved with Bitcoin “are too big to fail” in a post on Twitter. He even added that platforms could ultimately follow the failures of “pre-1914 gold banks.”

Bitcoin exchanges & custodians are "too big to bail", i.e. they can fail like pre 1914 gold banks could:
– No lender of last resort
– Private insurance only option
– Ultimately good for HODLers: no socialization of risk
– But: due diligence matters, buyer beware

— Tuur Demeester (@TuurDemeester) May 14, 2019

To elaborate on his comments, he added that multi-sig solutions, collaborative custody, and smart custody would end up improving the lack of centralization found in Bitcoin. Considering these qualities, the founder added that Bitcoin comes off as an ideal hedging instrument.

The lack of centralization in bitcoin will further be improved by multi-sig solutions, known as "smart custody" and "collaborative custody".

This is why bitcoin is so desirable as a hedging instrument: it can insure traditional portfolios against trust based, systemic risks.

— Tuur Demeester (@TuurDemeester) May 14, 2019

Demeester continued, saying that there are reasons that Bitcoin is considered to be “undesirable” by the Federal Bank, starting with the systemic risk. He noted that the “Bitcoin Fed” could end up dealing with a “bank run” or could end up seeing a security breach.

The other reason that Demeester addressed was bureaucratization, which comes from the socialized risk that Bitcoin poses, along with the private revenue. The founder made a third important point, saying that the bank notes for Bitcoin would “only be fractionally backed,” and the ones to see the biggest expense will be the users.

Continuing, Demeester pointed out that there’s still people who believe that Bitcoin “can’t work,” but most of that conflict is due to their belief that “centralization is important and desirable.”

However, he believes that the maturation of Bitcoin will ultimately lead the public to “clamor for a central bank of bitcoin.” When these changes happen, Demeester sees a major debate being discussed with the public.

Most of the people currently still claiming that "Bitcoin can't work" operate on the premise that centralization is important and desirable. Once Bitcoin is mature, these people will inevitably clamor for a central bank of bitcoin. Imo this will become a huge public debate.

— Tuur Demeester (@TuurDemeester) May 14, 2019

Presently, Bitcoin is trading at $8,032.61, following a steady climb through the last 7 days.