Thread: I frankly don’t get this. Just suppose there are bitcoin banks—not custodians, but intermediaries. Those who prefer more return and risk, with less anonymity, can choose to put place their Bitcoin in them.

Those who do so get either deposit account credits or transferable tokens (Bitcoin-denominated stablecoins). The bank in turn invests mists if the Bitcoin in receives in i-earning loans or securities.

The bank’s nominal return on these, like returns today, is a fn. of preference and expected inflation. It covers its cost with that return, including interest owed to liability holders—just like any bank ever.

The bank’s specific risk/return quotient will of course depend on its particular investments. There is no insurance or Bitcoin lender of last resort. So all depositors bear risk, the extent of which also depends on the size of their bank’s capital cushion.

In a free market bank owners might also attract customers by subjecting themselves to extended liability.

Now, its certainly true that many Bitcoin owners would rather hold it than trade it for Bitcoin bank IOUs, just as some people in the past hoarded gold—but with far less inconvenience than holding gold entails, including being able to transfer it almost without cost.

But interest is interest, and others would (if past experience is any guide at all) rather earn it than not do so. And the more banks establish a track record for safety, the more popular that option will become, other things equal.

It’s pointless to pretend we can know just how popular Bitcoin banking would become. My claim is simply that there is no reason to assume it could never become popular at all. (End.)