DeFi

DeFi could be more disruptive than Bitcoin, says Bank of America

  • Bank of America believes Ethereum's blockchain is superior to that of Bitcoin
  • DeFi could be more disruptive in the financial world than Bitcoin
  • DeFi sector still has a long way to go to challenge the mainstream financial sector

Major US bank the Bank of America believes that decentralized finance could be more disruptive than Bitcoin due to its increasing use and value in the global economy.

Bank of America doesn’t rate Bitcoin very much

Bitcoin is the first and leading cryptocurrency in the world. For this reason, it is attributed as the pioneer of the digital currency market. Cryptocurrencies have changed the global financial landscape, making transactions faster, easier, and cheaper for people worldwide.

Ethereum has always been the second-largest cryptocurrency by market cap, but many argue that its blockchain is perhaps the most useful in the crypto space. Bank of America agrees with this point.

According to the Bank of America, Bitcoin is the most talked-about cryptocurrency, but Ethereum’s blockchain provides more features and flexibility. Its hosting of decentralized financial (DeFi) platforms makes it a more important blockchain compared to Bitcoin.

The bank revealed this in a report it published yesterday called “Bitcoin’s Dirty Little Secrets.” Bank of America said there is no good reason for anyone to own Bitcoin unless they see the price going up.

The bank had more to say about the leading cryptocurrency, stating that “Bitcoin has also become correlated to risk assets, it is not tied to inflation, and remains exceptionally volatile, making it impractical as a store of wealth or payments mechanism. As such, the main portfolio argument for holding Bitcoin is not diversification, stable returns, or inflation protection, but rather a sheer price appreciation, a factor that depends on Bitcoin demand outpacing supply.”

DeFi could change the global financial system more than Bitcoin

The Bank of America said central bank digital currencies (CBDCs) are kryptonite for cryptocurrencies. However, it is intrigued by DeFi, adding that decentralized finance could be more disruptive than Bitcoin.

It predicts that DeFi could cause a radical change in the mainstream capital markets. However, with the DeFi market still at $35 billion, it has a long way to go to challenge the traditional financial system.

The traditional financial system thrives on credit creation, and DeFi doesn’t offer anything like that at the moment, the report added. “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,” the bank added.

The DeFi sector has experienced massive growth over the past year, and it could continue to grow.

 

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