Why Huw Van Steenis is Wrong About Bitcoin and Crypto Assets Failing The “Fundamental Tests Of Financial Services”
Huw Van Steenis, who currently is the senior adviser to Bank of England Governor recently said to Bloomberg that cryptocurrencies are not high up in his list of concerns.
— Bloomberg TV (@BloombergTV) January 21, 2019
“I’m not so worried about cryptocurrencies. They fail the basic tests of financial services. They’re not a great unit of exchange, they don’t hold value, and they’re slower.”
These sentiments are echoed by many in the traditional financial sector, including Gary Shilling. He thinks that Bitcoin is a “Black Box” and stays as far away from it as possible.
When asked if bitcoin has staying power, Steenis admitted that traditional financial firms are always careful about sustaining their ambitious advantage and market share. But for now, he does not believe that bitcoin or any other crypto is a viable challenge to the dominance of big banks.
“What I love when meeting with Fintechs is their obsession with customers. The challenge is will they get customers before the traditional banks can innovate.”
What Does Steenis Get Wrong?
There are numerous reasons why the advisor of the Bank of England is wrong. To start off, his assumption that government-issued fiat currency being a good store of value is not true. Economic recessions over the years have highlighted some of the deficiencies associated with Fiat money. The fact that a central bank’s greater control at times does little to stop inflation or recession has led most people to believe that gold could be a much stable currency given its unlimited supply. The notion of central banks control over the economy and the constant increase in global prices create the need for cryptocurrencies.
One of the other factors that he doesn’t consider is decentralization. Decentralized cryptocurrencies like Bitcoin and Ethereum have strong advantages over centralized financial systems, primarily because of their ability to function and operate without a single point of failure, which hackers and bad actors can target. Non-custodial cryptocurrency wallets enable users to remain in full control over their funds, by only allowing users to gain access to their private keys and no other centralized entity or platform.
The offshore banking industry, which is dominated by influential financial institutions like JPMorgan, is structured around large banks that are able to clear big sums of money in an efficient and secure manner. But, the transfer of millions to billions of dollars require significant manual labor including transaction verification, Anti-Money Laundering (AML) checks and payment clearing. Cryptocurrencies solve this problem through their decentralized networks.