Bank of America: DeFi is Traditional Finance’s Nemesis Not Bitcoin

Bank of America: DeFi is Traditional Finance’s Nemesis Not Bitcoin

The Bank of America (BofA) has argued in a fresh report entitled “Bitcoin’s Dirty Little Secrets,” that decentralized finance (DeFi) is the real disruptor of traditional finance, not bitcoin (BTC), as the latter has too many flaws.

 BofA Wary of DeFi Not Bitcoin 

 While Satoshi Nakamoto’s  bitcoin (BTC) and other cryptocurrencies have been in the news for the right reasons lately, Bank of America (BofA), the country’s second-largest lender with $2.16 trillion in assets, has released a scathing report entitled “Bitcoin’s Dirty Little Secrets.”

 In the report, the bank argues that even with bitcoin’s over $1 trillion market capitalization, the digital currency has way too many flaws that limit its potential of becoming a real disruptor of the traditional financial ecosystem, adding that the only reason people and institutions buy BTC is for purely for speculative purposes.

“Bitcoin has also become correlated to risk assets, it is not tied to inflation, and remains exceptionally volatile, making it impractical as a store of wealth or payments mechanism. The bank argued. “As such, the main portfolio argument for holding bitcoin is not diversification, stable returns, or inflation protection, but rather for sheer price appreciation, a factor that depends on bitcoin demand outpacing supply.”

 DeFi  the Real Threat 

 Despite the fact that coal-powered bitcoin mining operations in China’s Xijiang province consumed only a meager 0.2 percent of the country’s total electricity demand in 2017, as miners are gradually pivoting towards renewable energy sources, BofA still sees nothing good in bitcoin and has predicted that more cash inflows into it may turn the asset into one of the world’s largest carbon emitters.

 “Plus a $1 billion fresh inflow into Bitcoin may cause Co2 to rise by the equivalent of 1.2mn ICE cars, as hash power today is mostly in coal-fired Xinjiang, a link between prices, energy demand & CO2 means bitcoin is tied to Chinese coal. Should prices rise to $1 million, bitcoin may turn into the world’s 5th largest emitter, surpassing Japan,” it declared.

 What’s more, BofA further notes that another factor that makes bitcoin impractical for payments is that 95 percent of the total mined BTC is controlled by big whales. 

 The bank also noted that the burgeoning DeFi space, which is largely powered by Ethereum, is potentially more disruptive than bitcoin.

 “DeFi does, however,  show the opportunity which distributed ledger technology offers to finance. We believe that one of the best differences against being disintermediated by DeFi would be mainstream finance grasping these opportunities, it added.

 At press time, the price of bitcoin (BTC) is hovering around $58,789, with a market cap of $1.10 trillion, as seen on CoinMarketCap.

Ogwu Osaemezu Emmanuel

Ogwu Osaemezu Emmanuel is a graduate of Mass Communication and Media Studies. He joined the blockchain movement in 2016 when a friend of his introduced him to an investment platform accepting bitcoin. He has never looked back since then. Emmanuel believes the world needs real change and freedom from poverty. He sees crypto and the underlying distributed ledger technology as the catalyst to a better future for all.