5 Reasons Banks Are Terrified of Bitcoin (2024)

FAQs

Why don't the banks like Bitcoin? ›

One of the biggest reasons banks are against Bitcoin is that it grants individuals exclusive sovereignty over their funds, making it impossible for banks and governments to control individuals' funds and earn from it.

Poor infrastructure and low demand

If the demand for crypto purchases is deemed insufficient or not aligned with their customer base, banks may choose to decline such transactions.

Bitcoins Are Not Widely Accepted

Bitcoins are still only accepted by a very small group of online merchants. This makes it unfeasible to completely rely on Bitcoins as a currency. There is also a possibility that governments might force merchants to not use Bitcoins to ensure that users' transactions can be tracked.

A weak US labor market, fear of a tech bubble, and regulatory actions are factors behind Bitcoin's recent sell-off. Bitcoin (BTC) fell 8% between Sept. 4 and Sept. 6, breaking below the $54,000 support for the first time in over a month.

Significant volatility in crypto-asset markets, the effects of which include potential impacts on deposit flows associated with crypto-asset companies. Susceptibility of stablecoins to run risk, creating potential deposit outflows for banking organizations that hold stablecoin reserves.

An eventual international banking crisis might not negatively impact BTC's price; instead, fear could drive individuals to seek refuge in this decentralized asset.

Banks Block Crypto Transactions to Avoid Losses

So, if you've ever wondered why won't my bank let me buy crypto, it's probably because banks want to avoid situations where they are forced to pay back clients the losses caused by a transaction made by scammers.

Ethereum (ETH)

Ethereum was one of the first altcoins. Launched in July 2015, ethereum is the most valuable crypto besides bitcoin. The network's native cryptocurrency is called ether. Ethereum's blockchain was the first to introduce smart contracts, code that runs decentralized applications.

Will Cryptocurrency Replace Fiat Money? It's unlikely that cryptocurrency, in its current form, will replace fiat currency in developed countries. However, it is possible in financially struggling nations.

As it grew in popularity, Bitcoin became cumbersome, slow, and expensive to use. It takes about 10 minutes to validate most transactions using the cryptocurrency and the transaction fee has been at a median of about $20 this year. Bitcoin's unstable value has also made it an unviable medium of exchange.

Can the government shut down Bitcoin? ›

Since Bitcoin does not have any particular central authority, the government could just require every node that operates in the U.S. to have a license, effectively rendering the use of Bitcoin illegal since presumably most individuals would be incapable of going through such an arduous process.

Investing in Bitcoin cryptocurrency has its pros and cons. While its transactions are relatively secure, it's also prone to volatility, with large dips and spikes in price.

"Bitcoin has plummeted to around $53,000, marking a significant decline, while Ether has also turned negative for 2024, reflecting broader concerns in the crypto sector. This downturn is driven by regulatory pressures, adverse macroeconomic factors like weak US job data, and the Japanese stock market crash.

How is the Crypto Market Performing? The crypto market is in a significant surrendering phase, with Ethereum and Bitcoin experiencing sharp declines. The key market factors include political uncertainty, geopolitical tensions, economic data, and ETF performance.

Despite the long-term rise, Bitcoin has been dogged by periods where it's fallen precipitously. The most recent has been from November 2021 through 2022, when the prospect of rising interest rates and reduced liquidity in the financial markets sent Bitcoin's price much lower.

Decentralized Nature

Particularly, banks could have difficulty achieving a reasonable level of control and regulation over popular cryptocurrencies like Bitcoin and Ethereum. Nonetheless, cryptocurrencies are completely decentralized, meaning that banks will have to accept their limited control over these currencies.

If cryptocurrencies become a dominant form of global payments, they could limit the ability of central banks, particularly those in smaller countries, to set monetary policy through control of the money supply.

The borrower pledges a certain amount of Bitcoin to a lender, and in return, receives a fiat or another type of digital currency loan. If the borrower repays the loan within the agreed terms, they get their Bitcoin back. However, if they default, the lender can sell the Bitcoin collateral to recover the loaned amount.

In most cases, traditional banks do not accept bitcoin.