Living in Southern California, I am fortunate to be able to walk outside nearly every day. And I love my area, so I take advantage of it by walking a few miles in my neighborhood. Unfortunately, it was raining this past week, so I missed a couple of walks. However, I am not above walking in a slight drizzle or walking on wet concrete.
A few days after my walks, I realized my left sock was soaked. Meanwhile, my right sock remained completely dry. Finally, after peeling off a sticky, stinky sock on the fourth day, I realized I couldn’t wear the same pair of shoes in wet conditions. So today, I changed my shoes and had dry feet for the entirety of my walk!
Many more astute people would have made this conclusion after their first day with a wet sock. And some would have connected the dots by day two or day three. However, it took me four days to remedy my issue. On the other hand, they were non-consecutive days, so maybe that means I’m not as aloof as I think.
Regarding the fiat monetary system and the recent weakness in the banking sector, you may suffer from a mental version of sticky, stinky sock syndrome if you don’t own any Bitcoin. In the past month, we’ve seen four banks from relatively small to gigantic fold in days.
And while governments have stepped in to limit the contagion, it’s about time we recognize that the fiat monetary system may not be as sound and solidified as we are expected to believe. I’ve been in the crypto space for nearly six years. I’ve seen massive amounts of FUD- fear, uncertainty, and doubt spread by traditional finance toward the digital asset markets. Ironically, the FUD is now geared toward the traditional financial system.
Back to back to back to back catastrophes
There is a saying coined by Dr. Alan Weiss that goes: “Once an accident, Twice a coincidence, Three times a pattern.” I’m not certain what Mr. Weiss would call it if something happens five times in a row, but we may be on the cusp of seeing a fifth bank fail.
First, we had the canary in the coal mine when Silvergate bank collapsed. At its peak, Silvergate had a $5.5 billion market cap. Silvergate was a relatively small crypto bank, so the government let it fall.
Next, we saw Silicon Valley Bank require government assistance to ensure their customers’ deposits. The bank closed (after the executive team sold millions in stock last month), but this prompted government interaction.
At its peak, Silicon Valley Bank commanded over a $43 billion valuation.
At the same time, the government came in to save Silicon Valley Bank; they also took over Signature Bank, which they claim was on the brink of collapsing. Oddly, the government chose to close Signature Bank, which may be due to its strong association with the crypto industry.
Signature Bank reached a high of $23 billion in valuation.
Then, in Europe, we witnessed the complete meltdown and the (forced?) sale of Credit Suisse to UBS. The Swiss government had to guarantee deposits were safe to avoid widespread panic.
Credit Suisse is the biggest bank to fall so far. One day it was valued at nearly $88 billion. UBS paid $3 billion for its assets and probably got ripped off.
So far, we are talking about $156.5 billion in stock value from peak to trough that has evaporated. It doesn’t take into account any funds for bailouts or bond losses like Credit Suisse bondholders suffered.
And now, we have First Republic Bank struggling to survive. First Republic Bank held nearly a $39 billion market cap. It’s probably a matter of time before the government bails its depositors out.
The stock losses only represent the tip of the iceberg
These banking collapses have directly impacted stock and bondholders in these various institutions. However, they have also indirectly affected every individual and company depending on fiat (AKA every person and business), requiring governments to print more money.
By backstopping the failed banks’ deposits, the government instituted a new policy where banks could redeem their bonds for face value. This is good at face value because it restores trust in the banking system. Fractional reserve banking requires trust.
However, it opens banks up to taking advantage of the new policies at the expense of everyone else. They no longer need to practice the same risk management, knowing that the government will bail them out. Further, the Federal Reserve had to print more money to lend to other banks.
Many see Bitcoin as a lifeboat for the first time
There are many lessons that astute individuals will pull away from the unfortunate banking catastrophe.
- First, the Federal Reserve played a dangerous game with the massive money printing they did following a decade of nearly 0% interest rates. They are breaking things by raising interest rates too quickly to fight the inflation they caused.
- Investing in bank stocks carries significant risk. Credit Suisse proves that even large bank stockholders can lose most of their value. When the stock goes to zero, there’s no recovering your investment.
- The fiat monetary system makes savers and responsible ordinary people the biggest losers. This is because every time more money gets printed, our savings, earnings, and spending power get massively devalued.
- Having all of your wealth tied up in fiat-based investments and savings may not be the best strategy if things become undone.
I’m not saying that things will come undone. On the contrary, I don’t want that to happen. However, you have to recognize that holding your wealth in dollars, yen, euros, pesos, or any other fiat currency is a riskier proposition as each day passes.
Bitcoin is the largest and best fiat alternative allowing you to store wealth on a digital blockchain that central bankers don’t govern. It doesn’t require normal banks to access your wealth. And it is a global asset. So Bitcoin doesn’t prevent anyone from holding it.
Key Takeaways
It may take me a while to figure out that shoes with holes in the bottom aren’t good for walking. But I have no problem understanding that the Bitcoin narrative and diversification make more and more sense.
I came to this realization a few years ago. Many are coming to the realization today. And a lot more will in the future. So do yourself a favor and learn more about Bitcoin and the security it can provide you against devalued money and nationalized banks.
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