GETTY JP Morgan has claimed bitcoin will not be able to properly deal with a liquidity crisis

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The bank has claimed that bitcoin will not be able to properly deal with a liquidity crisis in the event of an economic shock. In the US, when such shocks have occurred, central banks pump additional cash into the economy to address declines in lending and spending in the private sector. However, such a liquidity infusion would be close to impossible with bitcoin because there is no central institution that controls the network and the number of coins released each year is fixed at a certain rate. JP Morgan stated: “The ability to provide adequate liquidity is a hallmark of a well-functioning market, but more so during times of crisis.

“One benefit of fiat money is that it can be used to provide emergency liquidity from the outside. “This is the role central banks play as the lender-of-last resort." However, Bitcoin backers hit back at the claims made by the bank, arguing that their case is built on the assumption that printing money to shore up an economy is something that is beneficial. Aaron Lasher, the chief marketing officer at cryptocurrency tech company Breadwallet, said: "This is a classic case of creating the problem you offer to solve, and exactly why bitcoin exists.

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"Why do we have the need for "emergency liquidity" in the first place?" Mr Lasher hit out at the fact economies are based on fiat currency which can be printed at the whim of central bankers. Mr Lasher said: ”So banks have no incentives to manage liquidity risk precisely because the marginal cost of printing more dollars by the central banks is zero, providing a guaranteed backstop against sustaining losses incurred by excess risk taking.”

Arthur Hayes, the chief executive peer-to-peer crypto trading platform BitMEX, also argued that such policies ultimately translate into inflation in other financial assets. He said: "If money printing solved the ills of economic collapse, Weimer Germany, Zimbabwe, and most recently Venezuela would be the most productive and economically sound societies on earth. Money printing delays the inevitable. "Without the ability to print base money at all, any institutional that extended credit would be evaluated by the market on its ability to responsibly originate loans."

GETTY Bitcoin backers hit back at the claims made by JP Morgan