Home Crypto As Banking Collapses Erode Trust, Bitcoin Fixes Moral Hazard

As Banking Collapses Erode Trust, Bitcoin Fixes Moral Hazard

by CryptoFan
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Bitcoin has established itself as a trustless alternative currency as the underlying problems in our economy were exposed by the recent bank failures.

This is an editorial by Mickey Coss, a graduate of West Point University with a degree in Economics. In the infantry he spent four years before transferring to the Treasury Corps.

Due to the accumulation of unrealized losses, Silicon Valley Bank (SVB) Gradual and sudden bankruptcy followed by Collapse of signature bank and peoplestart to wake up To the problems that pervade our financial system. A modern bank run, albeit digital, can inevitably lead to bankruptcy as banks are forced to sell their reserve assets at a loss.

As Balaji Srinivasan has It pointed outwhat was once considered the gold standard for risk-free reserve assets is now on the brink of a potential new banking crisis.As we know this is the end of the US Treasury is it?

At least from the weekend event — SVB failure Issues with other financial institutions Warning of Worrying Government Intervention – Shows how vulnerable the system has become, reducing its reliance on money printing, even though it is being undone by the low-yield, low-interest-rate environment caused by printing in the first place. I am emphasizing. The dichotomy is harsh, but there are lessons to be learned.

Ponzi cannot be tapered: Why the traditional banking system is ripe for failure

The way the banking system works is basically that banks take deposits and lend them out at higher interest rates than they pay. They often keep their reserves especially in US Treasuries and it seems like everything works until it fails.

Fed’s Tightening Cycle Will Not Raise Rates reduce bond prices, lowering the valuation of the bank’s main reserve assets. When depositors come to redeem their deposits, banks are forced to sell assets at a loss, ultimately failing to stop the bleeding.

Regional banks will bear the brunt of this blow, as the recent SVB collapse shows. Federal regulators are desperately trying to increase confidence in the system. 100% Guarantee of Depositor Fundsbut how much does it cost?


Depositors have certainly already fled to Big Boy, resulting in a more focused and vulnerable system than before. I think we all know deep down that we can’t save all bank customers. How much money will the public be willing to print in the name of financial stability?

As for stockholders, who would want to own stock in a small bank at this point? If they choose to do so, all risk is passed on to everyone but the depositors, encouraging the sale of shares and eating up the struggling banks’ risk-absorbing capital. banks could be put in a much worse position than before.

systematic trust vs.general distrust

The scenario unfolding before us clearly shows what happens when trust begins to break down in a system that is fundamentally based on the idea of ​​trust, not validation. In the modern world, people think they should keep their money in banks, but they must trust that they maintain effective risk management strategies to secure their deposits.

Bitcoin is fundamentally different. Eliminate reserve requirements, duration and interest rate risk, counterparty risk, and more. Bitcoin has no trust. I only have the code. By itself he is 1:1 backed up and doesn’t have to worry about running the bank as long as he holds his keys properly.

I suspect this is just the spark behind Bitcoin as companies struggle with payroll this week. Money without trust could help stem the tide of catastrophe in a system where trust seems to be crumbling.

This is a guest post by Mickey Koss. Opinions expressed are entirely his own and do not necessarily reflect those of his BTC Inc or Bitcoin Magazine.

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