Since Mr. Nakomoto first warned about the flaws of financial and banking systems over a decade ago and offered a better alternative, it was this month when Satoshi finally had "I told you so!" moment. That is if the creator of Bitcoin wanted to take a credit. Back when the global financial crisis was still unfolding, it wasn't too difficult to see how broken the system was, how bankers didn't care about the consequences of gambling with people's money, how politicians and bankers were colluding. As time goes by, the economic cycles repeat, and not all the wrongdoings are simply forgotten. As it was one time event, and wasn't going to happen again. Everything goes back to business as usual.
It wasn't going to be business as usual this time. This time, there was an alternative. A better alternative - Bitcoin. While the idea of decentralized money with immutable protocol was embraced by some. It wasn't welcome by those of leaning towards more traditional ways of conducting financial transaction. And for most of the public it was going to have learning curve of years to even get started in understanding what money is, and what it can be anything we call money.
Alternative is not necessarily a replacement. Replacements are usually done by centralized entities who dictate what legal tender is and put in place monetary policies. In some countries we have seen how politicians choose to replace the old currency with a new, because the were too many zeros on the bills which didn't represent much of a value. Now that is a replacement. It doesn't leave a freedom to choose. Take it or leave it. Alternative on the other hand, leave the freedom of choice up to the people. They can decide on their own this alternative can be beneficial to them at all.
Alternatives are never a threat. In fact they are the driving force of free market. If a company makes a product without a competition, and is profitable, in a free market chances are alternative products would emerge. This should encourage ambitions to deliver better goods, better services, and motivate to innovate. However, monopolies do not like alternatives and/or competition. They prefer to have none. Even in free market we see how bigger corporations simply buy out smaller innovators, or make is difficult for them to exist in the market.
Same is true about money. Money has a been a monopoly for a very long time now. US Dollar as a global reserve currency has dominated most if not all global financial transactions. Bankers have been in charge of this monopoly, in the leadership of Federal Reserve. Of course this monopoly is only possible in the presence of collusion with politicians. Politicians also have a lot to gain in this deal. It is all great and beautiful when things go well, economy grows, people are happy. However, the system is not designed for continuous growth. It programmed to crash every now and then. Usually, these financial problem may be preventable, but that would require to redesign the system which may not favor those who control it.
What we have seen last few weeks in how banks were collapsing or failing, is something we have already known for a while. Banks don't have enough money to pay their depositors back. They are not designed to keep all depositors' money safe, readily available when claimed. Nor are they held accountable for inability to deliver depositors' money when asked. The system encourages them to "gamble" with the money they don't even own.
This gambling behavior often characterized as investing and utilizing passive assets. Double standards are very obvious, when we consider the take of regulatory agencies and governments regarding stable coins. Almost everybody agrees if stable coin claims to be backed a fiat (USD), the minting or managing entity must have exact amount of fiat in reserves to back the stable coins in circulation. That sounds like reasonable ask. However, there isn't always clarity if certain entities do have full reserves of fiat to back the coins. I also agree, they must have the exact amount available. It makes sense. Why is this standard not implemented with banks. If depositors park their money in bank for some time, shouldn't all funds be available in reserves? Apparently not. It seems it is ok for banks to invest the money. And when big number of customers start to withdraw, they have no money available and collapse.
But wait, there is FDIC insurance for all depositors. It only covers $250K. That's a lot of money. It should easily cover an average bank customer, no? Why are they even keeping this much money in cash anyway? Shame on them for not investing, may the bankers think. When I saw in the news that Roku had almost half a billion dollars in Silicon Valley Bank, when it was announced that SVB was collapsing, it did look that was a lot of money to lose without ability to recover with FDIC insurance. Roku wasn't the only company that was about to lost a lot of money. There were many more companies that used SVB. Obviously there was a panic. Now because of banks failing in properly storing customer funds, companies were going to fail as well.
Then something interesting happened. US Treasury along with Fed decided to bail SVB and other failing banks out. They said, all depositor funds are safe, and they should be able to withdraw without any issues. All of the sudden, although not written in the laws, FDIC insurance coverage went from $250K to millions and billions. It's ok, your funds are safe. We can print more, you know.
I am not for financial or economic instabilities at all. I hope we done with negative news and future is better. We did come really close to the domino effect of bank failures. The question is was the crisis averted or delayed? Has the confidence in banks been restored? I think not. Now my deposits won't cause any crisis. Average people's money probably won't either. Thinking about thousands of companies having millions and billions at risk though is concerning. That is way too much money, and I am certain banks can't cover them all even with bail outs.
The issue at hand is not that banks are useless, inefficient, or incompetent. Banks do provide useful services for people and companies store their funds and engage in financial transactions. They are essential parts of the economy. Banks are competent. They have been around for a long time, and have developed systems that proven to work. They are efficient as well. Yes, some banks still use old computers and tech, but they still do work. The issue is the system, that allows bankers to gamble/invest with customer funds.
Some will say that the bonds SVB have bought was the safest investment. Investments are always risky. Markets are not predictable. Feds actions are even less predictable. Either way, it wasn't their money to gamble with. Why take such risks? Because system allows. Not only it allows it, it encourages such behavior. There is no such thing as passive assets. Money should be locked up in vaults. It should be invested to accumulate more and more money. That's how they think. That's what they do.
Interesting hypocrisy we can observe here if we compare the SVB collapse and FTX collapse. In essence, both are guilty of the same crimes. Both entities gambles with depositor funds, in hopes to make themselves rich and hopefully return customer funds before they find out. When gambles or investments didn't work out, what to do? There is no money cover the funds. FTX is declared fraud and its founder is under criminal trial. SVB, which did the same exact thing is bailed out by the most powerful financial institutions in the world, and the entire drama is downplayed as a bad investment in a wrong time. Isn't that amazing.
We already knew that banks, insurance companies, financial institutions do not have money to cover customer funds. If everybody were to withdraw at the same time, they would all collapse. But this was sort of imaginary fiction in our minds. Of course, this wouldn't happen to our money, right? It can, and it did. There was a bail out this time. Can bail out help next time.
Speaking of bail outs, what is really interesting is this time Congress and lawmakers had nothing to do with it. Usually, such things would have to go through long political debates, negotiations, and at the end they all would come to an agreement to bail out "too big to fail" entities. This time, none of that was needed. It just took a weekend for all colluding parties to get together and come up with the plan to pay, even if FDIC doesn't cover them.
This was a wake up call for many, especially for businesses with decent amounts of cash in their banks. Now, they all know that their funds are not safe in no bank. At the very least, this should make CEOs, CFOs, and financial managers to consider the alternatives. The number one alternative is Bitcoin. This would never happen with Bitcoin. Moving their cash into bitcoin would provide full ownership of their money, and won't let anybody else gamble with it. Moreover, this could be the biggest investment they have made themselves. Easy said than done. There are other obstacles for companies to make such moves. Not everybody is a Michael Saylor. If anything, what Mr. Saylor has done should be a motivation and inspiration for these financial professionals. There is a blueprint how to move away from banks and to bitcoin. And such moves do not have to be all and sudden. Bitcoin can even be a monetary strategy for a company as a hedge, insurance, or even a diversification.
The game has started. It is time for companies to decide, where their money is. Is it in banks that may one day collapse, or is it locked up in bitcoin vaults in cyber space? Let me know your thoughts in the comments.