When it comes to Bitcoin adoption and experimentation with cryptocurrency, Europe indeed has been the forerunner. With an industry ecosystem that inherently supports Fintech, Europe has offered a lot to Bitcoin’s journey. With recent reforms towards abolishment of high denomination cash transactions, the continent has taken one step closer to the adoption of cryptocurrencies and potentially supporting their developments. Owing to these above factors, Prime Minister of Malta recently proclaimed that Europe can be the Bitcoin continent. Let’s deep dive into the underlying factors behind the idea:
CEPS Ideas Lab:
Innovation platform of exchange, the CEPS Ideas Lab, brings together national think tanks across Europe for exchanging and collaborating on ideas and innovations. CEPS Ideas Lab 2017 – Reconstructing the Union took place on February 23 and is one of the main events in Brussels with Malta’s Prime Minister, Joseph Muscat as keynote speaker. The event consisted of over 1000 participants from 43 different nationalities with Government representatives, businesses, NGOs and other key European Institutions who gathered to discuss and debate over key European policies and issues.
Joseph Muscat’s view:
In a very captivating speech, Joseph Muscat has given an overview of his views on cryptocurrencies and how he envisages Europe can proactively rebuild the continent for the better. Among other ideas listed, Muscat fondly propagated that “Europe should become the Bitcoin Continent”. He believes that the rise of cryptocurrencies can only be slowed down but cannot be stopped. The financial institutions have come to understand the efficiency, transparency and cost effectiveness cryptocurrencies fetch. The PM elaborated on the above statement as follows:
“My point is that rather than resist, European regulators should innovate and create mechanisms in which to regulate cryptocurrencies, in order to harness their potential and better protect consumers, while making Europe the natural home of innovators.”
With Europe’s bid to become a blockchain country with friendly regulation, the idea really doesn’t seem far fetched.
The European banking system is struggling in the face of regulatory burdens and low interest rates. Banks are shifting business models to work within narrower margins.
In recent days, Deutsche Bank has contributed to the pooling fears over European Banking. Since July 2015, shares have decreased in value by more than 65%. Furthermore, net revenue dropped 21% in the first half of 2016 relative to 2015.
Deutsche Bank U.S. Stock Exchange Chart from Yahoo Finance
In addition to prior problems, a recent request from U.S. Department of Justice for $14 billion from Deutsche Bank has prompted media attention and concern. Bank officials have denied the need for a government bailout, yet limited investor confidence is reflected in the low share price, that has not experienced a strong rebound.
Meaning for Bitcoin
Bitcoin exists as an alternative to traditional banking systems. The weakening banking system validates the value that Bitcoin investors place on decentralization for two reasons. First, if Deutsche Bank’s initial failure is the product of a centralized system, Bitcoin is a good option for mitigating the risk of further future problems. Second, if Deutsche Bank’s failure is contagious because of a centralized system, Bitcoin is preferable because an internal failure would be largely limited to Bitcoin. These considerations have fueled excitement on Bitcoin forums such as Reddit as investors watch the European situation unfold.
In weighing these validating factors, it’s important to recognize that the comparison is somewhat between apples and oranges. Bitcoin and traditional banking systems are similar in that they facilitate the flow and storage of funds. However, they differ in prevalence and human interaction. The struggles of Deutsche Bank highlight issues associated with human error. In a hypothetical world in which Bitcoin is more prevalent than it exists today, regulatory burdens and government controls would contribute problems to Bitcoin, similar to those faced by the banking system.
A complete shift away from centralized systems and banks, as Bitcoin purists would have it, may seem like an extreme reaction to many investors. More likely, weakness in Europe serves as a motivator to place a stronger emphasis on diversifying through decentralized investing strategies, such as Bitcoin.