Whales and FUD are two major forces that have predominantly influenced cryptocurrency prices especially in 2021. They often go hand in hand because the level of fear, uncertainty, and doubt in the market provides selling opportunities for whales to sell so that they can reaccumulate at lower price levels. The bears seem to be dominating the market in the last few days and coincidentally during the same period that banks are aggressively blocking crypto exchanges.

Banks and regulatory authorities recently started blocking crypto exchanges, highlighting their aggressive attitude towards cryptocurrencies. Some of the major banks that have gone down this direction include Santander, Lloyds Bank, TSB, Metro Bank, and HSBC among others. Even reputable exchanges such as Binance have found themselves being ostracized in some European markets.

The traditional finance institutions have also provided various reasons for their decision to block cryptocurrencies. One of the biggest claims is that cryptocurrencies are highly volatile and risky, while a more pronounced reason is that digital currencies are used for money laundering. These reasons have spread more FUD especially in people that do not have a good grasp of how the crypto market works. Blocking exchanges has also limited the amount of money coming in and out of the crypto market, further disrupting the crypto market.

Evaluating a different truth

Cryptocurrencies like Bitcoin were created to overcome some of the shortcomings of fiat money and the traditional banking systems. They exist to make it possible for people to have more control over their money rather than leaving it to the traditional system whose cracks and imperfections have become more evident. For example, they are the same financial institutions that caused the 2008 financial crash because of taking on too much risk, and yet they now claim to be protecting their customers by blocking cryptocurrency.

Banks have also argued that Bitcoin is a highway for money laundering but in reality, it is perhaps one of the best things to happen against ML. This is because its blockchain makes it easy to trace cryptocurrencies, making it easier for malicious actors to be caught. Regulatory compliance is much easier in such a system. Meanwhile, most criminals still launder their money through cash dealings.

Are the banks only protecting their own interests?

The real reason why banks are blocking crypto exchanges and digital currencies might have less to do with the desire to protect their customers and more about protecting themselves. Rather than having enough reserves to facilitate withdrawals and interest payments, they operate on a fractional reserve that uses lending as the main avenue of making money.

The banks have realized that a lot of money has been flowing into crypto and subsequently their deposits are running lower, leaving them highly exposed especially to bank-run events. These concerns are further exasperated by the rising inflation levels in the U.S due to excessive money printing. The problem not only affects the U.S but the rest of the world because the dollar is the global reserve currency.

If you were selling a product and a competitor came out of nowhere, selling a similar product while undercutting your price, you would likely be angry. Banks are experiencing the same because cryptocurrencies are undercutting transaction costs, making remittance cheaper. While this works out well for the customers, it eats into banks’ profit margins.

Summary

Traditional financial institutions feel threatened by cryptocurrencies but they are waging a war that they cannot win. The crypto market has already advanced too much and even gone into DeFi which is arguably the endgame of digital currencies. More importantly, people are tired of a highly inefficient banking system and digital currencies offer an ideal alternative.