Bank of America Sees DeFi 'Potentially More Disruptive Than Bitcoin'

There is "no good reason to own BTC unless you see prices going up," the bank says, but it is intrigued by decentralized finance.

Mar 18, 2021 at 4:43 p.m. UTC
Updated Sep 14, 2021 at 12:29 p.m. UTC

Bitcoin is the most talked about cryptocurrency but Ethereum [the blockchain] has more features, including being more flexible" in its hosting of decentralized finance (DeFi) than the Bitcoin blockchain, according to Bank of America.

In its report, "Bitcoin’s Dirty Little Secrets," published Wednesday, the second-biggest U.S. lender has a lot of things to say about the largest cryptocurrency, such as there being "no good reason to own BTC unless you see prices going up" and that its environmental record is poor.

The bank also calls central bank digital currencies "kryptonite for crypto" but it is intrigued by decentralized finance, which it says is "potentially more disruptive than Bitcoin." The bank sees DeFi as a radical change to mainstream capital markets but, at $35 billion, has a long way to go compared to mainstream finance.

DeFi refers to the fast-growing area of automated, blockchain-based trading and lending platforms that might eventually pose a challenge to banks, Wall Street firms and insurance companies. But not now, says the bank.

"Credit creation is one of the key motors of modern finance. As yet, DeFi doesn’t do anything like this," the report states.

The Bank of America view is very different from last month's prediction by JPMorgan Chase, the biggest U.S. bank, that rapid advances in digital assets could present an existential threat to traditional financial companies.

  • “DeFi has seen a lot of innovation among exchanges. The key factor here is that with distributed ledger [technology], many of the functions, which are separate in fiat trading, are conducted on-chain,” Bank of America noted.
  • DeFi services, from derivatives to asset management, were also mentioned as areas of growth in the Bank of America report.
  • However, Bank of America highlighted issues about scalability, stating, “Ethereum may be more scalable than Bitcoin, but it, too, faces constraints in terms of speed, block size, the price of ether and so on.”
  • “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.”

The Festival for the Decentralized World
Thursday - Sunday, June 9-12, 2022
Austin, Texas
Save a Seat Now

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

Trending

1
CoinDesk - Unknown
Crypto Valley Venture Capital Launches African Blockchain Early-Stage Fund

The venture capital investor published a report which found funding for African blockchain startups far outpaced investment in other venture funding.

The venture capital investor published a report which found funding for African blockchain startups far outpaced investment in other venture funding.

CoinDesk - Unknown
2
CoinDesk - Unknown
First Mover Asia: Terra's Difficult Post-Collapse Path: VCs Backing Away, Regulators Jumping on Stablecoins

Some investors see salvageable pieces in the rubble while others are bemoaning their involvement and want to forget the protocol ever existed; bitcoin edges up in weekend trading.

Some investors see salvageable pieces in the rubble while others are bemoaning their involvement and want to forget the protocol ever existed; bitcoin edges up in weekend trading.

CoinDesk - Unknown
3
CoinDesk - Unknown
China Can’t Seem to Stop Bitcoin Mining

Reported hashrate fell to zero for two months in China last year, but it has since returned rather abruptly.

Reported hashrate fell to zero for two months in China last year, but it has since returned rather abruptly.

CoinDesk - Unknown
4
CoinDesk - Unknown
Could Local Digital Currencies Improve Communities?

That's the argument of the president of the RadicalxChange Foundation.

That's the argument of the president of the RadicalxChange Foundation.

CoinDesk - Unknown