Bitcoin backers are taking offense as the banking giant JP Morgan has pointed out what could be the cryptocurrency’s biggest flaw. It’s a flaw in the currency that can eventually see them capsize as a whole.
The bank has went on to state that in an event of economic catastrophe, the popular cryptocurrency won’t be able to deal with a liquidity crisis. When catastrophes happened in the past, US banks were able to pour funds into the economy to makeup for declines in spending and lending within the private sector.
These methods wouldn’t work for Bitcoin or other cryptocurrencies. Bitcoin lacks a central institution and without one they won’t be able control the number of coins released annually and the network. Nothing in cryptocurrency is fixed to a particular rate. JP Morgan went on to stress the importance of liquidity. “The ability to provide adequate liquidity is a hallmark of a well-functioning market, but more so during times of crisis. One benefit of fiat money is that it can be used to provide emergency liquidity from the outside. This is the role central banks play as the lender-of-last resort.”
Statements like this coming from a recognized establishment can cause investors to bail on Bitcoin. That said, the cryptocurrency followers stuck back and provided their own statements. They claimed that JP Morgan’s statement is based on the assumption that printing money to balance an economy is a good thing. In response to JP Morgan, Breadwallet’s chief marketing officer, Aaron Lasher has stated, “This is a classic case of creating the problem you offer to solve, and exactly why bitcoin exists. Why do we have the need for “emergency liquidity” in the first place?”
He then went out to state that economies are completely based on legal tender which is nearly at the complete whim of central banks. They print it as they want. He further stated, ”So banks have no incentives to manage liquidity risk precisely because the marginal cost of printing more dollars by the central banks is zero, providing a guaranteed backstop against sustaining losses incurred by excess risk taking.”
Both have stated facts to a certain extent, but one has to keep in mind that America isn’t Venezuela and isn’t at high risk of a sudden crash.