Saxo CEO: Bitcoin’s Liquidity Problems Are Driving Banks Away

Stan Higgins
May 9, 2014 at 21:02 UTC
Updated Jul 24, 2014 at 11:35 UTC

Saxo Bank co-founder and CEO Lars Seier Christensen has said that bitcoin’s liquidity problems are keeping banks out of the market for now. However, banks are looking into bitcoin and could become involved in the future, he said.

In an interview with FXWeek, Christensen commented that banks are unwilling to get involved in bitcoin markets because the current digital currency exchange infrastructure lacks the necessary liquidity to make larger-scale purchases practical:

“I’m not really sure that an exchange is, at this point, the most efficient way to get a market in here. The key question is the liquidity aspect – who is buying and selling these currencies.

The exchange initiatives are very thin in liquidity.”

Barriers to bitcoin growth

As a result of bitcoin’s liquidity problems, it is difficult for large financial institutions like banks buy large quantities on an exchange, Christensen reasoned. Were a bank to try to invest in the bitcoin market, it would likely run into issues actually finding enough BTC to buy on a given day.

Additionally, this makes it harder for large transactions to be orchestrated, which may pose as much a problem of institutional investors as it does for banks. According to Christensen:

“You almost have to do it bilaterally and find a big seller or big buyer outside of an exchange, unless you have a really market-moving event, which obviously is not going to be very attractive if you are trying get meaningful volume done.”

Christensen also suggested that bitcoin’s inability to conduct more complex financial transactions is a problem for banks. He hinted at projects like Ethereum, saying that he has “seen several attempts to come up with solutions, some of them potentially viable”.

Future bank involvement possible

Christensen didn’t say whether Saxo Bank would get involved in the bitcoin market. However, he is personally invested in the digital currency, and is scheduled to speak at this months’s Bitcoin 2014 conference in Amsterdam.

Currently, Saxo Bank is “investigating” bitcoin and determining whether the market is a right fit for the bank. Christensited said that, like most other banks, it remains a wait-and-see situation.

However, he remarked that Saxo Bank is considering a formal investment, saying, “We are not about to launch anything in that space, but we are looking at it and are interested in how it is developing.”

He added that he believes there’s a greater risk in not becoming involved with bitcoin:

“I feel over time it is likely that you will have to engage or you will lose out.”

For more on Christensen’s views on the bitcoin market and his own experiences with the digital currency, read his most recent interview with CoinDesk.

Image credit via Saxo Bank