Banks Do Not Like Either Bitcoin or Gold... It Makes Sense

It’s interesting to see what is happening with the bitcoin phenomenon : The banking lobby is getting nervous. We’ve already written about bitcoins in a former article and we explained, in short, that they acted a bit like « digital gold » units. Compared to gold, bitcoins are considerably less known, there are just a few of them, and they are more or less secure (hacking risks, thus theft, are high). On the other hand, this digital currency has some characteristics akin to gold : the absence of a control organism (thus no possible manipulation) and a limited quantity (no monetary press). Another advantage of this virtual currency is its close to zero trading costs.

That’s a lot for the banks to digest and it makes them nervous. Bitcoin has already started to compete directly with the banks by replacing debit cards for payment means. BitPay, the U.S. leader, has already signed 100,000 businesses ( as compared to 10,000 in 2012). Not to mention that savings in bitcoins represent money leaving the banking system.

So they’re reacting : Some banks in the U.S., Canada and Australia have closed accounts of clients dealing in bitcoins. The Bank of China realised that the electronic currency was used to avoid currency controls, and it asked chinese banks to stop using it for their transactions. But all of that will not stop, if ever so lightly, bitcoin’s rise; it’s already too late. They managed only to stop its rise (temporarily) under $1,000. They will most certainly use the means of derivatives, some kind of « paper » bitcoin, to try to manipulate its price. Those who follow the gold market know what I’m talking about.

The parabolic rise of bitcoin’s price ($100 this summer to almost $1,000 today), its growing adoption by businesses and the media hype surrounding it all point to a distrust in the overall banking system and paper money. It looks like a general rehearsal, on a very small scale, of what would happen with gold if people were to lose confidence in the euro or the dollar...

The « bitcoin-as-mafia-money » scare is not working anymore, and the central banks of China and France published, on the same day (what a coincidence!), a series of cautionary notes, such as calling bitcoin « unregulated money », « value not guaranteed », « speculation driving concept », « marketing stunt », etc. Quick, let’s find solace in our beloved paper currencies held by our all-knowing central banks!

All the hooplah around bitcoin, the banking lobby maneuvers (central banks and large banks), are quite reminiscent of what is happening around gold. Bitcoins and gold share some common points and differences. They have a different nature and yet they both represent alternatives to paper money, in different ways. They both bear witness to the growing distrust in paper currencies manipulated by central banks. Too bad... they will continue, loud and clear!