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Bank Runs Like These Are The Reason Bitcoin Exists

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We may be facing another financial crisis, including government bailouts for reckless banks. Bitcoin exists to fix this.

This is an opinion piece by Julian Liniger, co-founder and CEO of Relai, a Bitcoin-only investment app.

“Banks on the Brink of a Second Bailout”

At its core, Bitcoin is a transaction database. Every 10 minutes, a new collection of such transactions, called a block, is queued in Bitcoin and is immutable forever. Satoshi Nakamoto, the mysterious mastermind behind the first and most popular cryptocurrency, created the first transaction block. But Bitcoin is also a political project. At least the ideas behind it are always political.Nakamoto inserted a message The code that still forms the starting point for decentralized bitcoin databases reads, “The Times January 3, 2009, banks are on the brink of a second bailout.”

This political message is as relevant today as it was in early 2009, when the global financial crisis sparked outrage and outraged people around the world. The reckless banks that caused this crisis were not punished, be rewarded with taxpayer moneySince then, the government has claimed it has learned its lessons. US Treasury Secretary Janet Yellen Famously declared in 2017 She does not expect another financial crisis “in our lifetime”. Now guess what: she was wrong.

Silicon Valley Bank is just the tip of the iceberg

of Second largest bank failure in U.S. history is in full swing. After Silvergate Bank specializing in Funding cryptocurrency startups such as the imploded FTX exchangegone get angry, the regional Silicon Valley Bank (SVB) has also been hit.In the process of a zero interest rate policy and ever-higher tech startup valuations, banks From David to Goliath — at least in terms of the amount transferred there and put into the bunker.

But unlike 2008, rather than speculating in the US mortgage market, these banks simply adapted to the crazy financial markets of the day. In other words, in a zero interest rate environment, they really didn’t know where to take their vast amounts of fresh money. I was. The only problem with this is that the US Federal Reserve is currently pushing the federal funds rate to his 4.57%. Highest since October 2007.

A previously bought bond, when interest rates were still low, suddenly became the worst possible investment. Turmoil was inevitable when start-ups that had previously received exorbitant investor cash injections in a zero interest rate environment to survive even modest business models began to withdraw funds. Of course, SVB is not harmless either. Because if you specialize in a single customer segment, you’re easily vulnerable to a bank run. It is also becoming increasingly clear that much remains to be done in general risk management for banks.

cheap money revenge

I’m not going to absolve banks like SVB of sin, but I have to say: After the last financial crisis there was a lot of talk about tight controls and the shortcomings of “fractional reserve banks” where banks actually own only a small percentage of their customers’ funds, but years of interest-free There is very little left after . Fee Policy.

The ridiculously lax monetary policy of the Federal Reserve (and the European Central Bank), which surged in the wake of the COVID-19 pandemic, is now getting its revenge. “Higher, Faster, Farther” was the motto of the financial and real estate markets. Pardon is now too late, too sudden. The excesses of recent years have been marked not only by crazy startup valuations, but by thousands of hyped “altcoins,” ridiculously overrated NFTs, and even fancy watches and rare Legos. It is an alternative form of investment that is becoming increasingly popular, such as sets. We all couldn’t help but guess. “Cash is garbage” was the motto.

“Crypto” is a symptom, not a solution

With all the turmoil in the financial and banking sector, it should be noted that the crypto industry is not an alternative, but an even more vulnerable variant of the established financial system. It’s no surprise that it first collapsed due to bank runs and loss of trust.

Instead of the independence that Nakamoto inspired, many of the most talked about cryptocurrency projects exist because venture capitalists (VCs) didn’t know where to put their money in recent years. The COVID-19 pandemic, and — which is a key factor — has generated infinite money from newly created tokens in crypto projects. Creating money from scratch was a reality. This was an advantage for some insiders and VCs, but it was fatal for individual investors and cryptocurrency newbies.

as a side note, silvergate bank It also went bankrupt following SVB, another bank that provided bank accounts to US cryptocurrency companies.US Securities and Exchange Commission Led by Gary Gensler Looks Serious When It Says All Cryptocurrencies Except Bitcoin Are Possibly Illegal Security.

“Trust Scheme” or Absolute Transparency?

and now?inflation rate of About 10% is not uncommon in Europe, and even in the United States, confidence in what central banks do has long been shaken. The wounds of the financial crisis have not healed—yet.stock market may be facing a sale‘Crypto’ is a risky proposition, especially in the United States. Central banks have to choose between slowing the economy or continuing to drive inflation.

Recent events surrounding SVB have once again emphasized that the banking and financial system is a ‘credit scheme’, a system in which trust is essential.

Some have expressed their disappointment with Bitcoin as it was touted in many ways as a hedge against inflation. In fact, Bitcoin has performed well during years of unrestricted currency expansion, but is now hitting all-time highs, along with other risk and technology stocks.

Does that mean Bitcoin has failed? Not at all! Looking beyond the daily price list, an increasingly vibrant ecosystem has emerged around Bitcoin, including mining Bitcoin using green energy, leading to an ever more decentralized, disinflationary currency system. You can see that we are pumping computing power.

Bitcoin is more relevant than ever as an alternative money and payment system that is always available to everyone in the world, with no central vulnerabilities, no opening hours, no CEO, no one to block accounts.

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

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