Banking Expert Tells Congress: Government Reform Can Kill Bitcoin

Cryptocurrencies only exist because of failures in the traditional financial system, according to a leading banking scholar. In a hearing before the Senate Banking Committee, Mehrsa Baradaran said that financial reforms could cause cryptocurrencies to fade into obscurity, effectively killing Bitcoin (BTC).

Baradaran is a specialist in banking law at the University of California at Irvine. In her prepared remarks for the Banking Committee, Baradaran wrote that Bitcoin was developed out of frustration with a banking sector that perpetuated fraud and harmed people by “reckless risk-taking”.

But although Baradaran agrees these grievances are valid, she says that cryptocurrencies will not create the public, inclusive financial system that many of its proponents hope for. Nor can it provide financial services to the unbanked.

“The problems of inequality and inefficiency that bitcoin and the cryptocurrency industry has set out to solve are not problems of technology, they are problems of policy,” she wrote.

While cryptocurrency projects that have focused on underdeveloped or unstable economies may have a role to play, Baradaran says that there is little digital assets can offer to developed economies.

Instead, Baradaran recommends that politicians return to the original objective of the Federal Reserve. “Congress established the Federal Reserve in 1913 to increase the integrity, efficiency and equity of US payments,” she said.

“In the United States, we have decided that only chartered banks and their customers can access the payments systems built, maintained, and overseen by the Federal Reserve,” she added, after noting that 25% of the U.S. population is unbanked or underbanked. “Yet banks are not mandated to offer these services to all people.”

It would be “much easier” to rely on the existing payments system, rather than an alternative currency which would need to be adopted nationwide in order to have much widespread utility. “And it is in this chamber, and not in a tech startup office or anonymous white paper, that these problems must be addressed,” she added.

Today’s hearing comes a fortnight after Libra co-creator David Marcus gave testimony to both houses of Congress. The two-day hearings included the most high-profile discussions on crypto regulation to date and caused tectonic shifts in the market.

“I believe that we’re about to see more clarity regarding crypto regulations in the United States and that in itself is a vast improvement,” explained Mati Greenspan, senior market analyst at eToro.

Baradaran’s testimony advocates changing the Federal Reserve from the inside, which Greenspan believes will be nearly impossible. Cryptocurrencies, on the other hand, directly challenge central banks and fiat currencies and force them to improve to remain “competitive.”

“The government has a monopoly on money,” Greenspan added. “The libertarian in me would like to see an independent form of money begin to emerge that will force them to compete.”

Today’s hearing was markedly different from those two weeks ago, and might have a negative effect on the market. But it’s standard procedure for Congress to hear from all sides of the debate. While some might wish crypto had a better advocate than Libra, it will be interesting to see just how well the critics can fight the tide.

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