After several reasons dropped the largest cryptocurrency on the market to $ 20,000 last Friday (10), Bitcoin reaches its highest level of the last three weeks this Monday (13). Appreciating 25.8% in just four days, bitcoin reached $24,300, but its rise has not yet begun. After all, the American banking crisis is taking Bitcoin to its origins. Bitcoin creator’s speeches are making total sense now and are being spread on social media. In the first block of the Bitcoin network, for example, Nakamoto recorded the headline of the British newspaper The Times, pointing to the failure of banks that were considered too big to fail.
“The Times 03/Jan/2009 Chancellor on brink of second bank bailout”
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks You can also find criticism of the traditional banking model in the Bitcoin whitepaper. However, broader mention is found in one of his comments on the P2P Foundation forum.
“Banks must be trusted to hold our money and transfer it electronically, yet they lend it out in waves of credit bubbles with only a fraction in reserve”wrote Satoshi Nakamoto in February 2009 while explaining Bitcoin. “We have to trust them with our privacy, trust them not to allow identity thieves to empty our accounts.”
Satoshi Nakamoto, creator of Bitcoin, talking about credit bubbles and fractional reserve banks. Source: P2P Foundation. And that’s exactly what happened to Silvergate, Silicon Valley Bank and Signature in recent days.
How to bankrupt a bank? withdraw your money
As explained above by the creator of Bitcoin, banks use their customers’ money to make investments. That is, they make loans, invest in Treasury securities or in other assets. As the US raised interest rates to control inflation, the US economy slowed. The biggest examples were the layoffs of technology giants such as Google and Microsoft, but which also reached smaller companies. In the case of Silicon Valley Bank, some of its clients were venture capital firms. That is, as business was not going well, there were more withdrawals than deposits in the bank, leaving the SVB without money. However, there is a big difference between the SVB bank and the FTX broker, for example. While FTX used its clients’ funds for its own benefit, SVB had those funds in long-term investments, but which could not be redeemed without loss.
The big problem comes later
SVB was the 16th largest bank in the US. Given that, its bankruptcy is sending other bank customers rushing to withdraw their money before other customers do. This generates more problems, such as censorship, as mentioned by US Senator Thomas Massie this Sunday (12).
“Just left a Zoom meeting with the Fed, Treasury, FDIC, House and Senate. One Democratic senator essentially asked if there was a program in place to censor information on social media that could lead to a bank run.”
Just got off of a zoom meeting with Fed, Treasury, FDIC, House, and Senate. A Democrat Senator essentially asked whether there was a program in place to censor information on social media that could lead to a run on the banks. — Thomas Massie (@RepThomasMassie) March 13, 2023
Meanwhile, others point out that the US is splitting the banking sector in two. The first group, those considered “too big to fail”, would be saved by the government, as was the SVB, while the second group would not have such protection. In other words, this could trigger a new bank run on these smaller banks.
Banking crisis boosted Bitcoin
Circle, the issuer of USDC, soon admitted to having a 3.3 billion (R$ 17.4 billion) exposure to the SVB, causing the price of its stablecoin to lose the stability it promises. On Saturday (12), the USDC was traded for US$ 0.82 in some brokerages, but it was not the only one. Later, the Fed, the FDIC and the Treasury rescued the SVB and ensured that its customers would be able to withdraw their funds on Monday (13). USDC returned to $1, but people’s confidence in the banking system and stablecoins was already gone.
Binance brokerage, for example, converted BRL 5 billion of its own stablecoin, Binance USD (BUSD), into Bitcoin (BTC), Ethereum (ETH) and Binance Coin (BNB) this morning. From the noise on social networks and the rise in the charts, everything indicates that they were not the only ones. Finally, in addition to this lack of confidence, analysts also expect the Fed to lower interest rates to avoid a new crisis in its economy. Either way, both cases are great for Bitcoin, all because of the government’s rampant money creation.
“The root of the problem with conventional currency is all the confidence needed to make it work”said Satoshi Nakamoto in 2009. “The central bank should be trusted not to debase the currency, but the history of fiat currencies is littered with breaches of that trust.”
As for Bitcoin’s rise, it should only start after $25,000, but the fight between bears and bulls in this region should be complicated. That is, it is possible that Bitcoin will fall in the following days, but it should take off after breaking this resistance.
