Bitcoin analyst Tuur Demeester thinks that Bitcoin exchanges and custodians are “too big to bail” due to issues such as having “no lender of last resort” and “no socialization of risk”.
The Adamant Capital partner tweeted his views this morning, warning: “Due diligence matters, buyer beware.”
Bitcoin exchanges & custodians are "too big to bail", i.e. they can fail like pre 1914 gold banks could:
– No lender of last resort
– Private insurance only option
– Ultimately good for HODLers: no socialization of risk
– But: due diligence matters, buyer beware
— Tuur Demeester (@TuurDemeester) May 14, 2019
Tuur stated that he thinks that “Bitcoin has a much better chance of avoiding the centralization that happened in the gold world”.
He went on to say that “the lack of centralization in Bitcoin will further be improved by multi-sig solutions, known as smart custody and collaborative custody.
“This is why Bitcoin is so desirable as a hedging instrument: it can ensure traditional portfolios against trust-based, systemic risks.”
A federal reserve bank of Bitcoin
Tuur then described in his opinion why a federal reserve bank of Bitcoin is undesirable. He said that there is systemic risk that a ‘Bitcoin Fed’ could be hacked or face a bank run.
He claimed that “socialized risk would cause bureaucratization” and “Bitcoin banknotes would only be fractionally backed, at [the] expense of savers”.
The Bitcoin analyst concluded his multi-tweet storm by stating that “most of the people currently still claiming that ‘Bitcoin can’t work’ operate on the premise that centralization is important and desirable.
“Once Bitcoin is mature, these people will inevitably clamour for a central bank of Bitcoin.”