Shower Thoughts: Why Crypto is Rising in the Wake of Bank Collapses

Co-published on Odysee, Publish0x, and Zirkels.

+60%. That is how much Bitcoin has risen since the beginning of 2023. This is in spite of how much the crypto industry suffered in 2022 with notable collapses of Celsius, Voyager, BlockFi, and FTX. This is in spite of the SEC's crusade against cryptocurrency, particularly with staking. With Silvergate's collapse and the FDIC takeover of Signature Bank, both of which were 'pro-crypto', there were questions if crypto would fall further. BTC did fall below $20K momentarily in the wake of the Silvergate news, but has since skyrocketed.

There's no exact science explaining why this has happened, but here are my 2 satoshis. The nature behind Silicon Valley Bank and Signature Bank's collapse made people more wary about TradFi and the government's role in it. As a result, they want a system that grants them more autonomy over their wealth and that's where Bitcoin, and by extension, crypto comes into play.

Silicon Valley Bank was the result of, as someone described, incompetence and moral hazard. It did not hedge interest rate risk and allocated an extremely high percentage of its assets into investment portfolio at 57% (average is 24%). Not hedging interest rate risk can lead to millions to billions of dollars in losses. But the weird part was SVB did understand the concept of interest rate swaps, so you cannot attribute it all to incompetence. Combine that with SVB giving out loans to startups that did not fill a market need and were not profitable, you have a recipe for disaster.

It's a great thread, overall, so I recommend reading it in its entirety.

The takeover of Signature Bank was also pretty suspicious for different reasons. Relative to its assets, its unrealized losses were not large at all. It also did not have insolvency issues, so what gives? Allegedly, even the FDIC was surprised to have Signature fall into its hands.

In an interview with CNBC, board member Barney Frank said he believes "regulators wanted to send a very strong anti-crypto message" and as a result, Signature Bank became "the poster boy because there was no insolvency based on the fundamentals". As a result, there are people who speculate the fall of Signature Bank was the result of a political scalp: (1) Encourage a bank run, (2) Have the government take over, and (3) Replace the folks in charge with anti-crypto people.

The way both situations went down strongly reminds me of economist Milton Friedman's 4 ways of spending money. When your own money on yourself, you seek the highest bang for your buck. On the opposite side of the spectrum, when you spend someone else's money on someone else, you do not seek the highest value because you do not appreciate the money as much and there's less accountability.

Silicon Valley Bank was very irresponsible with the way it spent someone else's money on someone else. Meanwhile, the seizure of Signature Bank and the US government's general hostility against crypto make it harder for the individual to economize and seek the highest value for his/her money. I think that's why crypto has been on the rise as of late: people are trying to maximize the value of their money with crypto while they still can.

And they are not wrong to do so, in my opinion. In my writeup about the SEC's crusade against staking, I hypothesized that the US government wants to have a monopoly on digital currency so its easier to have control over people's money. CBDCs are more traceable, enforceable, and controllable, an authoritarian's wet dream. This is also the same government that has spent copious amounts of taxpayer money and inflated the USD by 14.4% as of February 2021.

When placing your crypto into a hardware wallet or a non-custodial software wallet, you own your private keys and therefore, you own your coins. It is much more difficult for the government to seize your private keys than for it to ask a bank to freeze your account (like during the Canadian truck protest). And the government cannot ban a protocol like Bitcoin.

If you want to grow your crypto portfolio to outpace inflation, you can trade, stake, or go into liquidity pools. Are there risks to each? Yes, and you can easily lose money if you're not careful or not knowledgeable of concepts like impermanent loss. However, you're losing money on your own terms as opposed to losing money because of a 3rd party's dumbassery. I think that's why crypto has gotten stronger: it emphasizes self-autonomy*.

*As long as you don't put your crypto into custodial wallets.