Bitcoin and other cryptocurrencies have been the subject of much debate and controversy over the years. However, a recent report from Bernstein analysts suggests that the future of banking may lie in these digital assets. In fact, the report predicts that “the future of banking has no banks,” and instead, will be defined by a new era of hyper-speed information flows and hyper-speed bank runs.
The report argues that traditional banks are dealing with a new risk that they “never fathomed previously.” Hyper-fast outflows are not yet available, but will soon be enabled by instant payment systems like the FedNow platform launching later this year by the Federal Reserve that will provide real-time, 24/7 access to payments for financial institutions of any size.
The new era of hyper-speed deposit outflows brings unknown counter-party risks for customers, and cryptocurrencies might actually help alleviate some of those risks. The simplicity of crypto as digital bearer assets solves for immediate counter-party risks, but customers also require stability of value. Bitcoin might not appeal to customers who view stability in U.S. dollar terms right now, but that could change.
“As we head towards another pivotal moment in monetary history, savers would also watch for not just stability in nominal value, but if any further accidents force the Fed to breach the ‘real value’ of the government currency again,” the analysts said. This could be the scenario some staunch bitcoin believers have suggested as the “final path to hyper-bitcoinization.”
The benefits of smart contract-based decentralized financial systems would suddenly appear as “built for this world,” the investment bank argued. DeFi, in Bernstein’s view, could facilitate a sort of new-age do-it-yourself banking system. “Instant liquidation of positions without any lag, do-it-yourself risk vaults on the blockchain, deposit stablecoins for revenue-based yields from financial protocols” is what the bank’s analysts envision.
Banking would be more customized, intelligent, and work in real-time, leading to more financial independence for the users of tomorrow, they said.
There are several reasons why cryptocurrencies could be attractive to consumers. Firstly, they offer a greater level of privacy and anonymity than traditional payment systems. Cryptocurrencies can be held and traded without revealing the identity of the owner. This is particularly attractive to people who are concerned about privacy violations or government surveillance.
Secondly, cryptocurrencies are decentralized, which means that no single government, bank, or institution can control them. This decentralization makes cryptocurrencies less susceptible to government interference, manipulation, or censorship. This is particularly attractive to people who are dissatisfied with the current monetary system, which they perceive as corrupt and biased.
Thirdly, cryptocurrencies are based on new technologies that promise to revolutionize the financial industry. Blockchain technology, which is the backbone of most cryptocurrencies, is a secure, transparent, and decentralized network that allows for secure and efficient transactions. Smart contracts, which are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code, could be used for a variety of financial transactions, from insurance to real estate.
Despite these advantages, cryptocurrencies still face several challenges before they can become mainstream. Firstly, many people are still not aware of or familiar with cryptocurrencies, which can make them skeptical or hesitant about using them. Secondly, cryptocurrencies are currently subject to high price volatility, which can create uncertainty and risks for investors. Thirdly, there is still a lack of regulatory clarity around cryptocurrencies, which can create confusion and barriers to adoption.
Despite these challenges, the possibility of “hyper-bitcoinization” and the rise of a new era of decentralized finance is an intriguing prospect. As traditional banks struggle to adapt to the new era of hyper-speed information flows, cryptocurrencies and DeFi could offer consumers a more personalized, intelligent, and independent form of banking. The future of banking may very well have no banks at all.
