Bitcoin Was Made For THIS Moment
Banks Are Collapsing, Bitcoin Is Up Big
Banks Are Collapsing, Bitcoin Is Up Big
Banks are collapsing.
Inflation is running Rampant.
And Bitcoin is somehow up 70% for the year, outperforming every other asset class.
Why in the face of so much economic uncertainty is Bitcoin doing so well? And what can it tell us about, not only the future of Bitcoin, but our entire economy?
What’s Happening With banks?
In March of 2023, the United States experienced the second and third largest bank collapses in its history, only surpassed by the failure of Washington Mutual during the height of the 2008 financial crisis.
Silicon Valley Bank failed quickly due to its overexposure to the tech industry, and an overinvestment in long-term Treasury bonds. With the weakening tech industry and the raising of interest rates by the Federal Reserve, the bank was in a rough place. As soon as depositors were made aware of Silicon Valley Bank’s financial troubles on March 8th, a bank run began, leading to the eventual collapse of the bank only two days later.
Signature bank fell just a couple of days after, partly as a result of Silicon Valley Banks collapse. Signature bank had a large portion of its deposits in cryptocurrency. 2022 had been a rough year for the asset class and many had already expressed concerns about the bank’s large cryptocurrency exposure. With the collapse of Silicon Valley Bank depositors of Signature Bank feared that they may be next. These fears culminated into a bank run that quickly led to the government taking control of Signature Bank.
This isn’t even to mention the failure of the massive Swiss bank Credit Suisse or the smaller crypto-focused bank Silvergate.
These bank failures, while unique in circumstances, are still indicative of many systemic problems within our financial system. Having two of the largest bank failures in United States history happen only a few days apart doesn’t inspire confidence in the robustness of the current financial system. Even with such unique circumstances.
Ironically this lack of confidence is directly what leads to the failure of many Banks. Financial institutions are really only ever as good as the trust their depositors have in them. As soon as people get worried and start rushing to take their money out it’s already over.
This is the major flaw of the Fractional reserve system. When you only have a fraction of the money people have deposited then you need confidence in your institution to be high. People should be confident, even proud that their money is safe in your hands. If not your institution will fail.
The catch-22 is that financial institutions are focused on making a decent profit with their depositors’ money. This time and time again has led them to compromise those funds in the search of monetary gain. Then when depositors find out about particular weaknesses in an institution word spreads fast. Within the day you have people lining up to take out every dollar they have. This exacerbates the situation and the bank fails.
That’s why, regardless of reality, you see every CEO and politician claiming that the system is more robust than it ever has been. This happened during the 2008 financial crisis and it’s happening again in 2023. Half the battle is just getting people to believe that everything is okay.
When banks participate in very risky and sometimes even deceitful behavior that hurts the economy as a whole, the belief would be that they would get punished. That isn’t always the case. In fact in 2008, many would argue that the exact opposite happened. Bad practices by the banks was what caused the crisis, but governments bailed them out and gave them the equivalent of a slap on the wrist.
Instead, the public bore the brunt of their mistakes. People lost their jobs, homes, and struggled to make ends meet for years. The recession caused by the lies and bad decisions of Bank executives really only effected people who had nothing to do with it.
The injustice that many felt by these actions in the months and years after the financial crisis spawned several major political movements, such as the Tea Party Movement on the right and the Occupy Wall Street movement on the left.
However, it spawned its biggest movement in the form of Bitcoin.
Why Bitcoin Was Made
Bitcoin was launched in early 2009 with the 2008 financial crisis in mind. The anonymous creator of Bitcoin Satoshi Nakamoto was particularly upset with the way the crisis panned out.
He made it clear that he thought the current financial system was not a good one. Shortly after Bitcoin was launched he wrote a forum post where he described his grievances with it,
“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.”
This quote makes direct reference to the problems with fractional reserve banking including the inability of many banks to keep our money safe. For this very reason, Bitcoin was designed to be trustless. No third party, like a bank or government, is required to make the system work. Instead, everything is decentralized so that the average person can have full control over their own wealth.
Satoshi also hid an Easter egg inside the code at the very start of the Bitcoin network. It reads
“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
This easter egg is a direct reference to the front page of the British publication The Times. This issue was published on the day that the Bitcoin network went live and shows exactly why Bitcoin needed to exist. Alluding to the fact that banks were getting bailouts during the financial crisis rather than suffering any serious repercussions for their role in it.
Quite literally Bitcoin was made for exactly what is happening in the world right now. The current financial system usually supports the wealthy and prestigious, while the more vulnerable population is exploited. Bitcoin was created as a protest to this system. By holding Bitcoin you can have a currency that banks don’t need to hold and governments can’t print more of.
The value of this cannot be overstated.
How Bitcoin Is Responding
With Bitcoin’s purpose in mind, it isn’t hard to see why it has been responding more positively to the recent bank collapses and economic turmoil. It has increased in price, at least in part, because investors see it as a hedge against the current system.
For a long time, Gold has taken this role. Gold is decentralized, limited, and widely accepted as a store of value. But with the advent of Bitcoin, many are turning to it instead. Bitcoin shares many of the properties of gold and brings them into the digital realm. This is why even amidst the banking crisis Bitcoin just had its best week in nearly 5 years.
Since Bitcoin’s creation in 2009, it hasn’t seen anything remotely close to the 2008 financial crisis, until now. The 2023 Banking crisis could end up being way worse than 2008 or it could already be over. Regardless it is a strong reminder of the fragility of our economy. When people see banks collapsing they will look for a better alternative and Bitcoin will be there waiting for them.