Banks Imploding; Bitcoin Surging
Probably nothing.
Three major US banks went bust, pretty much, within a few days. Silicon Valley Bank in California, Signature Bank in New York, and Silvergate Bank, which catered to the crypto industry, all collapsed. Very suddenly.
The weaknesses of fiat banking, of fractional-reserve banking, are being exposed.
What caused this?
Rising interest rates. Mismanagement. Excessive leverage. Hysteria on social media.
The cold, hard truth is, banks are usually teetering on the verge of collapse.
You deposit $100,000. Bank loans out $99,000. Puts the other $1,000 into some safe place. Usually US Treasury bills, or note, or bonds. And that’s where the trouble started.
For Silicon Valley Bank, a bank that catered to technology startups and companies funded by venture capitalists, their assets and liabilities were not properly managed. Their liabilities, including depositors, were short-term in nature. Their excess assets were invested in long-term Treasury bonds. Bonds that were purchased in recent years, when interest rates were near zero.
Obviously, with interest rates skyrocketing as the US government tries to tame record inflation, new bonds are yielding a lot more. And the old bonds, on the balance sheets of banks, plumetted in market value.
Forced to take writedowns, and actual losses, to meet obligations, some banks found themselves in trouble. Silicon Valley was one of the hardest hit. When word of their $1.8 billion (with a B) losses hit social media, the bank run was on. Think “It’s a Wonderful Life.”
Bank runs are interesting, for a couple of reasons. One, they are not like they used to be. You often don’t see huge lines around the corners waiting to withdraw cash. It’s mostly done electronically now. This scene above, At SVB, was actually very orderly.
However, social media lets the contagion spread faster than ever. Rumors of trouble almost become self-fulfilling prophecies. It is hard to say how much social media contributes to panic and eventually, the bank runs and impending implosions. It’s definitely a factor.
Through it all, Bitcoin has been surging this week. And it’s up fifty percent this year. That’s right. Fifty percent. Quietly.
The Fed openly tried to blame the failure of Signature Bank on its involvement in the crypto industry. There is no evidence that crypto exposure caused any harm to the bank. But we’ll see. Stay tuned for that one.
From $16,800 when the ball dropped on New Year’s, Bitcoin has surged to over $26,000 this week. I believe there’s a reason for that.
Stocks have declined quite a bit in the last fifteen months. They’ve been volatile. And many stock indices have been more volatile than Bitcoin. Did you ever think that day would come?
With the rising interest rates, bond values have cratered. With the country $32 trillion in debt, can Treasury bonds be very safe? Where do you put your money? Inflation eats away at cash, every day, at record levels.
More and more people are waking up to the possibility that Bitcoin, with its fixed supply and no one to mismanage it, could be one of the safest assets out there. And if one major player decides to go into Bitcoin in even a small way, it will spread.
Note some tweets this week from some big names, some successful investors:
Michael Saylor illustrates the stark differences between banks and Bitcoin.
And Dan Held, summing up this week’s activity in his normal inciteful way:
And Cathie Wood, with a bold statement about the Fed blaming crypto for bank failures:
Pretty good stuff, from some of the biggest names in investing. It seems like a movement has started. With interest rates rising and inflation still very high, there may be more bad news coming out about the fiat banks. And this could be very good for Bitcoin, a trustless asset with a fixed supply.
Thanks for reading Issue Number 100! And feel free to share this newsletter.
Bitcoin Tools, Platforms, Podcasts:
Twitter - Follow The Bitcoin Files on Twitter at @BitcoinNewslet1 for all of my articles, commentary and links to my contributions to Bitcoin Magazine.
Medium - Check out my writings on Medium, including articles not featured in the newsletter. Join my 600 other followers who read and write about crypto. medium.com/@rickmulvey
Podcasts - To hear the top names in Bitcoin, and learn more than you could imagine, check out The Pomp Podcast with Anthony Pompliano, What Bitcoin Did with Peter McCormack, and The Wolf of All Streets Podcast with Scott Melker.
Issue No. 100, March 17, 2023
Rick Mulvey is a CPA, crypto consultant, and frequent contributor to Bitcoin Magazine. He writes about all things Bitcoin, and yells at the Yankees and Giants. He also runs marathons and makes wine, neither professionally.