Bitcoin [BTC] exchanges like Gemini are full reserve banks, says Tuur Demeester

Tuur Demeester, the Founding Partner of Adamant Capital, spoke about Bitcoin exchanges being full reserve banks, during an interview with Stephan Livera.

During the interview, Livera brought up an old article written by Demeester titled ‘Why Bitcoin is the Petroleum of our day.’ In this article, Demeester had suggested what customers would demand in the future, including flexibility and control, deposit banking with high transparency, lending and borrowing brokerage as a separate service, 100% predictable monetary policy and anti-fragility. On this, Demeester was asked whether he saw a future with Bitcoin full reserve banking.

He said,

“Yeah […]I think there’s going to be this incredible tension between, on the one hand full reserve banking and on the other hand that the desire to go fractional a fractional reserve banking […] people trust you as an entity with thousands of bitcoins and the only thing you can do is just sit and stare at them and charge them a little fee”

Demeester further stated that the chances of people withdrawing 80 percent of their assets were pretty low. And, because of this, entities will start lending out some of these coins to make an extra return, while they in turn pay depositors an interest rate.

However, the challenge faced here was the absence of a central bank that was “ready to be the lender of last resort and bail out the banks.” Demeester went on to state that “things can escalate very quickly,” adding that there would be a lot of risk if people started to withdraw their coin from exchanges over events such as Proof-of-Keys. He said,

“[…] that’s why really trying to try to emphasize audits of Bitcoin exchanges and trying to build tools that make it easier for exchanges to audit reserves in a way that still preserves their their customer confidentiality […]

This was followed by Demeester stating that reserve banking was “already the case,” adding that in theory, all Bitcoin exchanges are full reserve banks. He quoted the example of Gemini, a cryptocurrency exchange, that provides cold storage facilities,

“I think the interesting you know time is coming where people want a return on their Bitcoin and then there’s these shops that say hey you can do it here and and the risk is that they’ll start making these impossible promises of like ‘oh, we can make you a return but also your bitcoins are always available to you which is not possible”

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