No, it's like pulling cash from banks and sticking it under the mattress. Sure the wider cryptocurrency market is a financial wild west, but bitcoin is relatively stable (I don't mean non-volatile) at this point. It's a reasonable alternative.
The problem is that it is not sticking cash under the mattress it’s the equivalent of buying trading cards and sticking them under the mattress..
You are exchanging cash for crypto which means the exchanges now have to deal with the cash deposits somehow and where can they put it? Well they’ll put it either in banks which solves nothing or invest it as they see fit which likely to be even more problematic.
You're implying it's impossible to purchase goods and services with cryptocurrency. What's stopping someone from say purchasing gold bullion with cryptocurrency and in turn exchanging that for cash? There are also OTC exchanges. My point is there are many methods to exchange it for some other thing of value that doesn't directly involve exchanges and in turn the traditional banking system.
Cryptos without traditional banks and fiat flowing in and our cannot exist. Unlike Bitcoin exchanges, at least certain amounts are guaranteed at banks, money can't be stolen, and cyber criminals would be persecuted and jailed - not the case with crypto!
@Balaji is betting on a huge run-up in the near term due to loss of confidence in banking. I’m not certain his targets are rational at all but his thesis is sound.
In essence many billions and probably trillions of dollars are being pulled out of insolvent banks and a good deal of that will find a home in BTC over the coming months since BTC is sheltered from the banking and central bank system, which is hobbling.
When rich people do something that on the surface seems dumb, there is always some ulterior motive. $1 salary means good press and higher EPS, which boost stock price.
Where does this money end up in? As bitcoin price really does nothing about it existing. It just moves from hands of buyers to sellers or current owners. And those sellers have to also have a place for it? But what is that place?
BTC is rising probably because people are exiting more fraud tokens (like stabletokens) into less fraud ones, propping up their price. Zhao alone can manipulate BTC price as he sees fit, due to the sheer amount of token he has.
People aren't converting dollars to BTC, they're converting stablecoins (whatever that means) to BTC. They're supposedly worth a dollar, but people are starting to realize that is very likely not true.
Crypto is going through a stablecoin crisis. The market is waking up and realizing that stablecoins may not be fully backed, and are likely worth less than the dollar face value. So BTC holders are demanding more stablecoins in return for BTC. BTC might not be worth much, but it's becoming clear stablecoins are no dollar substitute.
Stablecoin purchasing power is decreasing, that's all that's happening here.
Bitcoin is an asset with significant market risk but basically no counter-party risk if held in self-custody on chain.
Bank deposits are unsecured loans used to speculate with leverage for privatized profit. If their bets fail we socialize the losses among all dollar holders. USD in a bank account has minimal market risk other than inflation but we are collectively learning the difficult lesson that they present significant counter-party risk for depositors.
> they present significant counter-party risk for _depositors_
I’d say the risk is for _bearers_, not depositors, and even then the risk is (mostly) that of inflation, like you mention.
No one has lost their deposits in the current events. Even with the FDIC upper limits, I can’t think of many scenarios where a human person would need to hold more than $250k in liquid assets (other than in the short term), and if they did, they could split the sum over several banks.
Now, I’m not saying that the system is heading in the good direction, that the FDIC will make depositors whole in the face of systemic widespread bank failures, nor that such an event wouldn’t affect the economy in other negative ways. I’m saying, however, that the counterparty risk for the average and not-so-average person holding USD stems mostly from who controls the money supply (govt and the Fed).
The recent events show that the financial sector is a significant counterparty risk for participants in the economy, but I’m not persuaded that BTC would solve that because the problems come from institutions engaging in risky behaviour, which is independent from the currency being used to represent value. Case in point: the numerous crypto exchanges and totally-not-a-bank investing firms that crashed in the last 12 months.
Edit: Incidentally, you can self-custody USD just fine (it’s just not very practical for large amounts)
So far FDIC insurance has protected depositors, even those with millions in the bank (right or wrong, I won’t make that call).
Notably, the FDIC insurance fund only holds $128 billion to backstop over $17 trillion in deposits. We know now, and the Fed knew since at least September, that close to 400 banks are in a similar situation to SVB (basically insolvent on a mark to market basis).
What happens when more banks fail than the FDIC fund can backstop? The only question is will it be depositors, US taxpayers or all dollar holders globally left holding the bag?
> What happens when more banks fail than the FDIC fund can backstop?
I’d hope we don’t have to find out. Regardless of who holds the bag, it’ll be bad. (In an ideal world, depositors will be depositing in banks with finances matching their risk profile, but I digress.)
How would crypto make this better though? Yes, self-custody eliminates the counterparty risk, but just like with USD, self-custody is just not practical for many people. Many people choose to hold their crypto in exchanges (because of convenience) or lenders (i.e., equivalent to banks, because of yields.) So doing results in similar or higher counterparty risks.
If we abolished fiat and moved to BTC, a financial system will arise on top of it which will likely closely mirror the USD financial system (actually, it already does now). If that happens, the counterparty risk for depositors remains.
I’m all for crypto, but I think it’s naïve to think that just because self-custody is a possibility, counterparty risk will go away.
If you have a significant amount of USD, you can mitigate the risk of your bank failing on you by holding physical cash or by holding T bills.
Edit to add:
Also, the no counterparty risk is mostly theoretical. I’d wager that the vast majority of people that practice self-custody of their crypto are still exposed to some (but different) risk. To be safe, you need an air-gapped and trusted device holding the private keys _and_ ideally running your own node (on a different device). Do you trust your hardware? Your OS? Your wallet? If the device you transact from is compromised or is susceptible to being compromised you are exposed to risk. Hence, insurance is still needed.
I agree with everything you are saying. Self-custody isn’t as easy as leaving your money in the bank. Also, although I see the benefits of Bitcoin I don’t think it should be the only currency option.
I would like us to take this opportunity to recognize that fractional reserve banking where depositor funds are used (with leverage) to make speculative bets (on mortgage backed securities or even T-bill interest rates) is a fundamentally unsound model.
I would much prefer a model where I have the option to store my funds in a full-reserve bank and would happily pay for the service.
As for self-custody, it is a skill like any other and one that I think more people should learn. Self-custody is fundamentally no more difficult than say building a sound backup strategy (3 copies minimum, stored in at least two formats with at least one stored offsite) There are ample tutorials on the internet and I hope more people recognize that counter-party risk is real, whether it be fiat or crypto.
Yes, Bitcoin is volatile but on a risk adjusted basis it is still the best performing asset in the world over the past decade. This excludes the stratospheric rise over its first four years of existence.
For the past 10 years, it has grown in value at an average rate of 200% per year.
In portfolio theory there is a measure of risk adjusted return known as the Sharpe Ratio. Over the past ten years the best performing portfolio based on Sharpe Ratio would have been 97-99% US Treasuries and 1-3% Bitcoin.
You don’t have to store 100% of your savings in Bitcoin, but having a little in your portfolio might be an idea worth considering.
bitcoin is the perfect hedge against kleptocratic regimes and hyper inflationary economies such as cyprus, greece, venezuela, sadly the united states has not only joined but racing up the hyper inflationary economy list. the fed added 300 billion $ and swiftly have undone the QT of the past few months within a few days with a whiff of problems at $svib, $frc, $pacw, $wal, $kre, $cs. [As of Wednesday last week, 4 months of QT have been reverted in a single week: https://fred.stlouisfed.org/series/WALCL]
the other alt coins though might have a sympathy rally are at best grifts except for privacy coins like $xmr,$zec,$grin,$beam,$ada[haskell]. $BTC as the grand daddy of crypto reigns supreme again.
So much for that...dropping like a stone. People will be more amazed by how fast it falls than how fast it goes up. It always falls so fast just when it seems like it is going to break out. For example, in April 2022 when it was at $47k over the weekend...two months later it got as low at 19k. It has not bottomed yet from a technical analysis perspective. The bottoming out process , based on past bear markets, takes about 2-3 years. It has only been 16 months.
Part of the reason why technical analysis fails so bad on stocks is because stocks are influenced by non-technical things (like profits & earnings) . Bitcoin is not like that. It's price is purely a function of supply and demand. So this makes technical analysis more useful, but this is not saying it's doable or easy. Just easier, because you have eliminated a variable. I think there are certain patterns that have repeated. The long bottoming out process is one of them.
TA is the primary form of analysis for all financial markets. The idea is that the price contains all of the information, hidden on publicly available. It's a requirement for taking the CFA.It's widely accepted by regulators, academics, and industry professionals.
It certainly works for many traders who consistently outperform the market by trading stuff like FX and Crypto. TA and trading price action can also be a tool to limit risk.
Btw, selling plans of executives often involve very trivial algorithms, such as "sell when price above VWAP till price reaches <some lower bound> for 30 days or 20.000 shares sold". (Some brokerages will try to create additional liquidity in the meantime, depending on what you want and how much your security is traded).
Correlation doesn't mean causation. Hamsters and octopuses have outperformed hedge funds in experiments. You can outperform the market by throwing a coin to make decisions. TA has zero scientific basis and there are no proofs for any analysis TA people make.
Who can say? Btc has no intrinsic value or connection to any part of the real economy, other than the willingness of some people to pay money for it. They make up stories about why it should go one way or the other, but they are just stories with no real meaning. It’s all in their heads.
I think it needs to be more specific in that BTC (Blockchain Takeover Coin) is at $28k. It had the same ideas as a "Bank". A safe place to store wealth. But Banks in general use your wealth to try make more money with it. The original Bitcoin idea had this foundation as it was not owned by anymore. BTC has lost it's foundations and it will need a lot of work to try and bring that idea back since a lot of exchanges have basically turned into a Bank for the token and a bankrun on BTC would be fun to watch.
Let's take a system collapsing due to lack of regulation and move to the wild west of finance. Genius.