If you're not engrossed in the world of cryptocurrency, it can be tough to understand the motivation behind investing in them—especially when it comes to bank investments.
Fortunately, I'm here to clarify your confusion by explaining six reasons banks are investing in Bitcoin. Here are six reasons banks are investing in Bitcoin:
- Hedge against inflation.
- Inexpensive transactions.
- Unmatched security.
- Potential for technological integration.
- Bitcoin has a profitable record.
- Bitcoin is gaining global acceptance.
If you're new to crypto, you may see the logic behind all of the above reasons. Don’t worry: I'm here to help you understand each of the above explanations.
After reading this article, you'll have a fuller understanding of why banks are investing in Bitcoin.
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1. Hedge Against Inflation
Inflation is on everyone's mind. The consumer price index jumped 8.5% over the past year, and banks are looking for a way to avoid inflation.
In 2022 Bitcoin is beginning to take over gold as a long-term store of value. Banks are noticing Bitcoin becoming a major competitor for gold and investing accordingly.
Bitcoin is an effective long-term store of value because of its scarcity. Currently, the quantity of Bitcoins in circulation is pushing 19 million, and there will never be more than 21 million Bitcoins.
The cap of 21 million Bitcoins means Bitcoin can't experience inflation caused by an increase in supply. In contrast, the United States Dollar does not have a finite supply, so as more United States Dollars are printed, the value of one United States Dollar decreases.
2. Inexpensive Transactions
Blockchain technology offers a unique opportunity for extremely low-fee transactions. Blockchain developers have developed a Lightning Network, which can process Bitcoin transactions quickly with minimal fees.
While the average Bitcoin transaction fee is over $20, the Lightning Network allows Bitcoin users to send money for a fraction of a cent.
Additionally, the Bitcoin Blockchain takes about ten minutes to process a block, which means it takes 10 minutes to confirm a transaction. The Lightning Network processes transactions in under a minute and often even under a second!
The Lightning Network opens the possibilities for multiple micro-transactions in a short period, with almost no fees. The traditional banking system simply can’t compete with the speed and low fees that the Lightning Network can offer.
The banks are taking an "if you can't beat 'em, join 'em" approach here. Banks can't compete with the Bitcoin Lightning Network, so they're investing in the technology.
By investing in the technology, they will profit off the Lightning Network without needing to develop a competing model.
3. Unmatched Security
Bitcoin is a far more secure network than any bank. Every day that passes without the Bitcoin Blockchain experiencing a breach adds another notch of validity to the security of blockchains.
Bitcoin is a decentralized currency, so there is no single weak point for hackers to dismantle the system. Hackers can still target centralized entities within the crypto universe, like exchanges.
But so far, it seems like it's impossible to hack the Bitcoin Blockchain as a whole. Banks are centralized organizations and are just as susceptible to malicious hacks as centralized crypto organizations.
These institutions see the potential use case of blockchain security and are willing to invest in it.
4. Potential for Technological Integration
I mentioned in the previous point that there are aspects of Bitcoin that banks can’t compete with. Instead of fighting against it, banks can simply integrate Bitcoin's Lightning Network into their platform.
Everything developed in the world of crypto is open source, which means anyone can integrate blockchain security or Lightning Network transactions into their platform.
However, you must have a stake in crypto to utilize the open-source material. Think of crypto programs as vending machines. You're able to use any crypto program as long as you pay the appropriate vending machine fee.
Banks are more than willing to pay these fees to utilize the unbeatable benefits of crypto.
5. Bitcoin Has a Profitable Record
Here’s a great way to think about it: the United States Dollar is short-term stable, but long-term bearish (decreasing in value). On the other hand, Bitcoin is short-term volatile but long-term bullish (increasing in value).
A good investor is a long-term thinker. Short-term investments will never be as consistent as carefully thought out long-term ones.
Banks know that long-term investments are superior, so they are drawn to Bitcoin. Bitcoin has proven to be a profitable long-term investment.
6. Bitcoin Is Gaining Global Acceptance
Over the past year, Bitcoin has begun to accrue global acceptance on a government level. On September 7th of, 2021, El Salvador became the first country to make Bitcoin a legal currency.
Although the El Salvadoran population has been hesitant to accept Bitcoin, the legalization of Bitcoin in El Salvador shows that Bitcoin is a viable financial platform for day-to-day transactions.
You're probably thinking: so what? El Salvador is just one country. A couple of months ago, you would have been right, but El Salvador's legalization of Bitcoin as official tender may have started a domino effect of countries following suit.
In late April 2022, the Central African Republic became the second country to make Bitcoin an official currency. With two countries accepting Bitcoin as legal tender, more could follow the same path if there is success within El Salvador and the Central African Republic.
Banks notice that Bitcoin has begun to receive acceptance at a governmental level and don't want to be late to the party.
As Bitcoin and other cryptocurrencies begin to gain more trust and usability, banks will continue to invest in this life-changing technology.
Banks don't want to be left behind and obsolete, so they will all have to eventually adapt and make Bitcoin apart of their monetary system.
Bitcoin and the blockchain is still in it's infancy and the future looks really bright for this revolutionary technology.
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I'm Donny. I'm a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.