Is It Time For Bitcoin Contagion?
As exchanges halted bank stock trading on Monday to prevent the repercussions of the collapse of SVB from spreading, the most pressing question in mind should be if this is a clear market signal for Bitcoin contagion.
This Time We Have a Tool!
To understand the kind of role Bitcoin should be playing now it is important to remember or state some fundamental facts:
- Satoshi mined the Genesis block on January 3rd, 2009
- The famous quote from The Times “Chancellor on brink of second bailout for banks” links the creation of Bitcoin with the failure – some would say fraud – that traditional financial systems and fiat money represent
- That quote came after the collapse of the financial system following the sub-prime crisis, which brought giants like Lehman Brothers and Bear Stearns down in 2008
- Those bailouts that ensued and the lowering of interest rates from what were historic lows, set up the next financial crisis – Bitcoin adopters tend to be keen to warn others about this
- Fast-forward to March 8th, 2023, the failure of Silicone Valley Bank – SVB – due to the aggressive interest rate hikes during 2022, was set in stone
- SVB goes under, the federal government intervenes – Yellen does not want to call it a bailout
- Bitcoin gains almost 17% in 24 hours
As the traditional financial architecture keeps on crumbling, requiring expensive bailouts, why is there little to no Bitcoin contagion?
No Signs of Bitcoin Contagion as Amplified Financial Malaise Spreads
Even 14 years after Satoshi Nakamoto created BTC and warned us about the perils of bank bailouts, there are no signs of Bitcoin contagion yet. Companies and people should be buying BTC at a greater rate, especially understanding how fragile their bank deposits are.
The opportunity for self-custody of funds through a hardware wallet, should be driving everyone towards a well-established alternative that could have saved millions of people, had it existed 15 years ago.
What Will it Take?
Bitcoin has some important gains on its side of the ledger:
- A $470 billion USD market cap at time of writing
- Prominent tech personalities and companies endorsing its use, like MicroStrategy and Michael Saylor
- Governments warming up to the idea of using it as legal tender, like El Salvador
Yet wider adoption based on the pure rational thought of weighing its advantages against the disadvantages of holding fiat money in the bank, is more elusive. The collapse of SVB, the subsequent downturn of Signature Bank, and the reported bank runs on other regional banks like First Republic, is not enough.
Old Habits Die Hard
Old habits die hard, and there is a powerful case of fiat dependency that Bitcoin contagion must fight against. Those 2009 bailouts have become the norm according to how this SVB story is developing, because an overwhelming majority of market actors cannot let go of fiat.
This should make us all wonder if we are too addicted to debt to embrace a tool that is so hostile towards credit. This looks like the underlying factor that will plunge countries and societies deeper into debt while the BTC niche keeps on growing, without being able to break through the confines of the space it currently occupies, into a wider segment of the economy.