Bank Runs Like These Are The Reason Bitcoin Exists
The author argues that Bitcoin could help to prevent another financial crisis like the one that happened in 2008.
It is possible to be
We are heading into another financial crisis
Government bailouts for reckless banks are included.
Bitcoin is here to fix it
'ON THE BRINK of SECOND BAILOUT OF BANKS'
Bitcoin is fundamentally a transaction database. Bitcoin is a transaction database. Every 10 minutes, a new set of transactions, known as a block, are added to the queue. They remain immutable for eternity. Satoshi Nakamoto was the mysterious mastermind behind the most popular cryptocurrency. He created the first transaction block. Bitcoin is also a political project. At least, the idea behind them was. Nakamoto
Insert a message
In the code that forms the beginning of the decentralized Bitcoin data base: "The Times 03/Jan/2009, Chancellor on brink for second bailout of banks"
This message is just as relevant today as it was during the global financial crisis of 2009, when anger and outrage erupted across the globe. The banks responsible for this crisis' recklessness were not punished.
Rewarded with taxpayer money
Since then, governments have claimed to have learned from their mistakes. Janet Yellen (the U.S. secretary to the treasury)
She stated that she believes there won't be a new financial crisis in her lifetime. Guess what? She was wrong.
SILICON VALLEY BANK IS ONE TIP OF THE ICEBERG
Second-largest U.S. bank failure in history
It is currently in full swing. Silvergate Bank was a bank that specialized in
Financing crypto startups like the imploded FTX Exchange
The regional Silicon Valley Bank (SVB), has also been affected. The bank was hit by the zero-interest rate policy and the ever-increasing tech startup valuations.
From a David to a Goliath
-- At least, in terms of the amount that was transferred and bunkered there.
However, unlike 2008, these banks didn't speculate on the unhinged U.S. Mortgage market, but simply adapted to the daily insanity in the financial market. They didn't know where to put their vast sums of money in the zero-interest rate environment. To earn at most a small return, they purchased long-term, conservative government bonds in order to get some return. This is not ideal because the U.S. Federal Reserve increased the federal funds rate to 4.57%.
Highest since October 2007
The worst investment was suddenly made in bonds that were previously purchased, even though they had low interest rates. Chaos was inevitable when startups that had received large amounts of investor cash to keep them afloat, even with modest business models, began to withdraw their funds. SVB isn’t immune to this risk. If you focus on a single customer segment you are easily vulnerable to a bank ran. It is becoming more apparent that the bank's overall risk management was poor.
THE REVENGE OF CHEAP MONIES
SVB and other banks are not exonerated of any responsibility, but it is possible that this happened after a decade of inaccountability. After the financial crisis, there was much talk about tighter controls and the failures of 'fractional Reserve Banking', in which banks actually only own a small portion of customer funds. However, the bank has not been able to recover from years of zero-interest rate policies.
The Federal Reserve's (and the European Central Bank's) absurdly loose monetary policy, which was given a boost after the COVID-19 pandemic in 2001, is now back on its feet. The motto of financial and real estate markets was "Higher, Faster, Further". All of us were forced to speculate. The motto was "Cash is trash".
"CRYPTO" IS A SYMPTOM AND NOT A SOLUTION
Despite all the chaos in the banking and financial sectors, it is important to remember that the crypto industry does not offer an alternative but an even more fragile version of the existing financial system. It's not surprising that FTX is so popular.
Bank runs and loss of faith caused the implosion of other crypto projects, including Bitcoin and others.
Instead of Nakamoto's assertion of independence, many of the most hyped crypto projects are the result of venture capitalists (VCs), who didn't know where they should put their money. During the COVID-19 pandemic 'blockchain' was a popular buzzword. VCs also had no idea what to do with the new tokens created by crypto projects. It was possible to make money from nothing. This was profitable for a few insiders or VCs but fatal for retail investors or crypto novices.
SVB, another bank providing bank accounts to U.S. cryptocurrency companies, also went bankrupt. Gary Gensler, the U.S. Securities and Exchange Commission's chief, seems serious when it states that
Every cryptocurrency, except bitcoin, is a potentially-illegal security
"CONFIDENCE SCHEME" OR ABSOLUTE TRANSPARENCY
What are you waiting for? And now?
In Europe, 10% is not unusual
In the U.S. too, trust in the words, actions, and promises of the central bank is long gone. The financial crisis has not left any scarring marks. The stock market
You may face a sell-off
'Crypto' is risky, especially in the U.S. Central banks must choose between slowing down the economy or continuing to drive inflation.
After the recent events around SVB, it is becoming clearer that the banking and monetary systems are a confidence scheme', i.e. one where trust is essential.
Many people are disappointed in bitcoin because it was widely viewed as an inflation hedge. Bitcoin performed well during years of unbridled expansion in monetary funds, but it is now at a loss relative to its highs like other tech stocks and risk.
You can see a vibrant ecosystem around Bitcoin if you look beyond the daily price tag.
Green energy for Bitcoin mining
This is because the disinflationary, decentralized monetary system has more computing power than ever before.
Bitcoin is a new alternative money and payment system that doesn't have any central vulnerability, opens at all hours, has no CEO or can be blocked by anyone. It is accessible to everyone, around the world, and has a greater relevance than ever.