The Impact of Bitcoin and Blockchain in Financial Institutions

What attitude does banks have towards Bitcoin, and how does it affect banks future?

Bitcoin development is among the internet finance that has mounted a lot of pressure on the banking industry. In this regard, banks are called upon to espouse current technologies if they are to meet contemporary customer needs as well as the environment that witness new forms of competitions by day. The Bitcoins majorly emphasize on the payment banks payment method functions. One advantage of Cryptocurrency is that it has lower risks and higher security. Cryptocurrency also assumes a tax on every transaction with is different from the transacted amount. It is also difficult to steal this form of currency and so, when transacting, one does not require a third party and this in the long run cuts down the cost of transaction.

What worries that banks is but, that the whole system of Bitcoin rests slowly on trust and so if the government fail to support it, then its value will be rendered unstable and the entire business dealing in Bitcoin will be driven with a lot of speculation. The banking sector so risks a lot more when transacting in Bitcoin given the speculation arising from customers. The future of the banking sector is projected to at a higher risk based on the excessive finance and inadequate regulations by the government. This means that the main concentration should be based on taming of Bitcoins so as to evade future crises or in this case banks recession. In this regard, it can be expected that profound reforms of the global financial regulation be in line with the accepted failure of the legal basis that is already in place before crisis ensue. Famous scholars in the field, the likes of Erick Helleiner and Barry Eichengreen, recently issued their books that have helped to explain why there has been lack of the transformative reform of the global finance system. According to Eichengreen, financial collapse of banks as well as depression, if any, were generally avoided when Cryptocurrency technology ensued. This nurtured the belief that the prevailing system contained less to no flaws, a point that weakened the debate for essential action, and so, failure was the brainchild of success.

The above argument has received a mixed reaction as excellent job has been done in embracing measures in the spheres of banks capital, liquidity, and resolution in a bit to escalate the flexibility of the banking sector, surrounded by the financial system. Only a few achievement has been witnessed beyond banks, more so in what considers non-bank entities or OTC derivatives, together with activities of what is commonly called shadow banking. Nevertheless, as argued by Erick Helleiner, reform in the financial sector encountered emergence of a hopeful revolution in that took the image of macro-prudential policy: a strategy that utilizes regulatory methods to manage increased financial risks in the system and in the end soften the financial cycle, that is the fluctuations of key financing, control, and asset prices, the goal that is deemed crucial. But, most economists as well as policy makers are still skeptical over this remark.

Policies to do with monetary cannot concurrently cope with dissimilar objectives and the longing for macro-prudential policy has become more serious based on the realization that radical economies are subject to facing a long period of nominal and real growth. In this regard, monitory policies must remain accommodative, with as little interest rates as possible that can advocate for yield in asset markets, leading to macro-prudential policy being the main motivator of institutions that will in the long run, ease the financial cycle and foretell asset yields more necessary.

The world is currently undergoing a noteworthy shift away from intermediate finance of banks, something that is expected to continue even in future. Structural reforms in banks are the only way to curb the global recession problem. Low interest rates that are as a result of secular inaction makes the task of the financial stability and monetary policy to be complicate further. A

more working framework is important in if these challenges are going to be managed so as to avoid the global recession. But, a working regulatory framework necessitates a sustained vigilance. A broadened toolkit is necessary in taking intrusive and decisive actions of macro- prudential policy and a structure that is a position to expand, so on include each important systemic institutions and activities. This becomes even more important when policies surrounding money are accommodative so as to predict future banking crisis.

Cryptocurrency has one define characteristic that distinguishes it from other currencies. They are anonymous and as such the users of the currency are protected by the anonymity factor that accords it the required privacy. There is no control over the crypto currencies by a third party since they cannot be tracked in any way. The crypto currency market is yet to undergo development and as such there is an aspect on moral hazard as people cannot in any way learn the truth underlying the currency. There is only the block chain format used for regulation and the manner in which the regulation is done is not worth the expectation. In that regard, there are plenty of illegal activities that go around in the market since there are no clear provisions as well as absence of a tracking third party in the entire process. Monitory value has a way of influencing business a huge a deal in as far as production is concerned. Banks get into business courtesy of the former relations and the bind created in previous enterprises. In that regard, the culture of the people trading on the global market determines the direction taken by the banking question. The growth of the bank is majorly determined by the acknowledging the likely exchange mode they deal it. Using the only internet as the means of creating awareness is so limited to some people. Because a good number of buyers do not have time to explore the web adequately. Such factors used when the business might have an uphill in executing its operations.

Continued use of cryptocurrency will also be challenging in ensuring the banks viability.

A reliable currency plan is paramount before the start as this will make banks to identify and record the specific source of goods, the market, and the particular amount of the money the proprietor is willing to invest. Avoidance of bitcoin will also help banks picture how the transaction will run and be able to formulate the necessary strategies that will see the firm succeed shortly. Reliance on Bitcoin is a dangerous thing that can destroy any business that is part of the global business parties. In a position to determine the future profitability of the banks and make vital decisions for a bank in focus.

Banks can use various aspects of evaluations for instance, ratio analysis helps which will help in understanding the trend of the business within a specified period. Also, it is a vital source of information which acts as a comparison tool with other companies in the same industry. Through this, an individual can decide on whether the firm should continue with its operations or not. In this case, the profit margin of the company is confident, which is a clear indication that the management is using the resources provided to them to generate adequate returns to the owners.

Additionally, it is evident that the cost of goods sold is low when Bitcoins are applied. Therefore, an increase in the sales means that the revenue of the company keeps on rising. Also, there is a possibility of the enterprise expanding its operations and enjoying economies of scale which means that costs will decrease. So, it is essential for the management team to be vigilant for future survival. For example, the firm has been fighting so hard in the past three years to ensure that they operate with zero debt. As a result, I can conclude that their target is bearing fruit even though not according to their expectations. If we observe the current ratio of the company, the current liability is very minimal as compared to current assets.

Nothing defeats the mind of the financiers on the entire globe like the failure of designing a clear strategy that can control crypto currency as a whole. The most important thing of all is to come up with a way of monitoring the business that goes on online and one which its influence over rates is determined by the natural forces of demand and supply. The control and monitoring of block chain via use of rigid institutions should play a key role in making the emerging industry work out better. The bottom line is control of the moral hazards involved and for any reason the business calls for a full control not even partial control designs. In most cases the block chain form of business in as far as it has been going viral online. There are cases that local banks have raised concern over the business. In that case the banks feel the impact created by the business and for one reason or the other feel intimidated.

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