Before we begin to unravel what’s going on with the banking system and how it affects crypto, let us first quote Trezor Bitcoin analyst Josef Tětek through Cointelegraph:
“Tětek said that the current banking crisis could potentially make Bitcoin emerge as a safe haven and risk-off asset. He emphasized that Bitcoin was created soon after the world encountered the financial crisis of 2008 and was ‘likely a response to the unfairness of bailouts.'”
Things are getting stranger by the month, it seems. We were just talking how FTX was an example of why the crypto market is bad, fraudulent and unregulated. Now, what’s taking the headlines?
- Credit Suisse, one of the biggest banks ever, signaling collapse… it’s like the private sector Federal Reserve
- Silvergate’s collapse, still being attributed to FTX to some degree
- SVB’s collapse due to “poor risk management”
And just a little bit more from Tětek before we try to unpack the state of affairs:
“Banks no longer actually hold our money, but lend it out and buy volatile assets with it. Depositors are, in fact, the banks’ creditors. Understandably, people are looking for alternatives such as Bitcoin.”
He is very much on point, but what does he mean when he says “no longer”? The last time banks held our money 1:1 was… the 17th century? Maybe. The absurdities of the banking system have been well-known for a long time, and this was the case in 2008. But what happened then, and what happened now?
Well, we have Bitcoin now, but that’s only going to be relevant to a degree. The banking system was supposed to collapse between 2008-2011, and didn’t because of a “too big to fail bailout”. A luxury FTX didn’t enjoy, hence the billion articles slamming it.
There isn’t really a reason why there wouldn’t be another bailout. There might not be, if whoever is pulling the strings wants a financial collapse. But assuming things are the same on that front as some 15 years ago, Credit Suisse absolutely fits the much-desired “too big to fail” label. So we might get more monetary debasement, the ultra-rich being bailed out with poor people’s money and all that good stuff.
It’s a little annoying that this is unfolding right as some are calling crypto unregulated and what not. Well, where’s the regulation for traditional banking? And isn’t regulation on crypto just going to prevent it from protecting us against permanent lack of regulation on traditional finance? Depends what you’re doing with your crypto.
Let crypto do its thing by using it properly
Tětek reiterated that self-custodied crypto of the decentralized kind is the best kind of crypto. By leasing out custody to exchanges through hot wallets and adopting projects with agendas, aren’t we setting ourselves up for more of the same?
Yes, BitIRA does a little bit of both to satisfy both customers and the government. We try to offer appealing but tested projects, and give the most secure form of storage available for a digital IRA. Unlike the money in your bank account, the crypto in your digital IRA isn’t the custodian’s to lend.
Still, it’s a shame that this erosion of trust that’s coming from traditional finance is enveloping crypto. More banks are imploding than crypto exchanges, and yet all we hear is FTX, FTX and more FTX. Binance’s outflows any time there’s a flare-up tell as much.
The traditional banking crisis is, of course, one of liquidity. Having done bad things with our money, they don’t have enough reserves. Nevermind the whole gold contracts bit. Credit Suisse is reassuring clients that it’s liquid enough, but less and less are believing it. If there comes a point when it’s clear that the banks aren’t liquid enough, there is either going to be a bailout or a bail-in. Neither are going to be pretty.
True to Bitcoin’s purpose and underlying workings, it can’t be taken from you in such a manner because it’s held in offline storage. That goes for quite a few other cryptos, too. Crypto stored on an offline ledger can’t be used as collateral even if a third-party is taking care of its custody. Even if the custodian turns mad, there’s still the multi-layered protection of the offline ledger that only you can remove. If only Credit Suisse had something of the sort in its offering…