Confidence in central and commercial banks is rapidly disappearing. The internet and social media are the fuel to the fire and Bitcoin is the extinguisher.
This is an editorial opinion by Julian Liniger, co-founder and CEO of Relai, a Swiss-based bitcoin-only investment app.
‘Trust Us, Bro’ As The Remaining Tool
Banking only works when there is trust. It is fundamentally based on the belief that the banking system is strong and resilient enough to protect your money. But this trust-based system has shown that it has rich and powerful benefits from this protection. As we saw in 2008 and since, ordinary taxpayers foot the bill.
It is ironic that Credit Suisse, which was one of the winners of the 2008 financial crisis, was one of the first banks to collapse in the current crisis. Between 2008 and 2023, we have seen numerous scandals, ongoing litigation, appalling risk management, and endless drama, slowly eroding confidence in our prestigious institutions.
So, who should pay this price? You guessed it right: Everyone in Switzerland does! The Credit Suisse bailout (although no one is officially calling it a “bailout”) is estimated to cost 109 billion Swiss francs ($13,500 for every man, woman and child in the country).
Like commercial banks, central bank decisions and actions are only effective if people believe in them. The Federal Reserve and the European Central Bank (ECB) (among many other central banks around the world) have made bold claims, only to be proven wrong. Officials like Janet Yellen, Jerome Powell and Christine Lagarde have consistently underestimated inflation. He even mocked anyone who warned of the consequences of years of ultra-low interest rates and unbridled balance sheet expansion during COVID-19.
Now, the statement that was meant to calm us down is back. Yellen famously said in 2017 that we “will never see another financial crisis.” Lagarde reluctant to explain how to deal with inflation in the talk show and only said that inflation will go down in “due time,” only to now freak out because of the “monster” that is inflation.
So the evidence is mounting, while politicians and central bank officials like to tell the masses that they have a lot of tools, the only way left is to “Trust us, bro.”
‘Trust Schemes’ Don’t Work In The Age Of Social Media
As confidence in the banking system and perhaps the financial system is eroding, and the bold words of reassurance are proving to be nothing more than empty words, it is not surprising that the severity has increased. Given this fact, it should not be surprising that (among other things, like its persistent reputation) Tweets and WhatsApp messages have caused credit Suisse bank. Similar to how the Silicon Valley Bank (SVB) was set in motion by the public warning of influential people in the startup scene, like Peter Thiel.
What might be called unfortunate coincidences are symptomatic of a wider crisis of trust. Creating a shared narrative, belief and common direction is more difficult in 2023 than, say, in the 1970s. Instead of weekly newspapers and magazines, now news is spread in seconds. And expert opinions and contrarian opinions went viral on Twitter, Reddit and elsewhere within minutes.
We can see that banks operate in a different digital era. Scared people don’t need to walk into a branch and ask for money. They can do it from their homes. What makes banks in the fractional reserve era is that tens of thousands of people can do it all at once.
Will this lead to a domino effect of bank centralization as confidence in banks, especially smaller ones, is quickly lost? The message Yellen sent after the SVB collapse was loud and clear: We decide case by case if we need to save small banks. Go to a big bank like JPMorgan Chase to be safe because we won’t let them die. The trend of small banks being absorbed by big fish is accelerating like never before.
This shows that not only our money is not suitable for the internet age, but also the institutions and the Powells, Yellens and Lagardes of the world cannot keep up with the speed and complexity of the environment.
More central planning and continuous meddling in the market cannot be the answer. To think that the people who brought us here can show us the way out is naive.
Money Printer Will Brr Again… Then?
Despite (unofficial) government bailouts like we’ve seen with Credit Suisse, politicians and central bankers around the world are stuck between a rock and a hard place. They face a difficult balancing act between raising interest rates to tame inflation and maintaining liquidity in the banking system.
On the one hand, they have to raise interest rates. They must tame inflation somehow and pop “all the bubbles” that pushed the price of everything from stocks, real estate and luxury watches to NFTs and thousands of “crypto” projects up over the last few years.
On the other hand, they must ensure sufficient liquidity in the banking system, so that the wheel can continue to operate. While no official spokesperson wants to use the term “bailout” after 2008 again, what happened in the US and Switzerland with Credit Suisse is exactly this. It all boils down to what angered people in 2008: Banks know they can take risky bets, so they do. And when the shit hits the fans, they can be saved by taxpayer money.
The money printer will spin again, casting more doubt on the promises of central bankers and politicians. The reason is simple: There is no other solution in the central bank’s toolkit in an age of unlimited fiat money backed only by promises and grand speeches.
The question is not whether our money will be devalued, but only how fast. In any case, the current speed is unbelievable even in the richest countries in the world, such as Germany. With current price inflation at 8.7%, it will take eight years (!) for the value of money to be halved in the Federal Republic of Germany. In the UK and Austria, we now see inflation rates exceeding 10%, not to mention countries like Argentina or Turkey, where hyperinflation (price inflation of more than 50%) is the order of the day.
Opt Out With Bitcoin, Get Out of Counterparty Risk
Tidjane Thiam, who became the executive director of Credit Suisse in 2015 and held the position until 2020, famously called the bitcoin bubble in November 2017: “From what we can tell, the only reason today to buy or sell bitcoin is to make money, which is the definition of speculation and bubble definition.
At that time, the price of bitcoin was around $7,000. The rest is history and irony.
Thiam doesn’t seem to understand or doesn’t want to understand why people buy assets like bitcoin: They want to opt out of the aforementioned trust scheme. They are looking for ways to make contrasting financial bets and out of the financial system altogether. It is ironic and sad that we need an event like the collapse of a once prestigious institution like Credit Suisse to clarify the case for Bitcoin to skeptics like Thiam.
Today, more and more people are waking up to why Bitcoin exists and what it can do for them: hold wealth in an asset that no one can tamper with – no government, no CEO. An asset that no one can censor, that is difficult to confiscate and cannot disappear only during a crisis.
Political movements like Occupy Wall Street made headlines during the financial crisis of 2008. Fifteen years later, we know they didn’t exist. On the other hand, Bitcoin is healthier than ever as a movement and a technological solution. Bitcoin is not just a theory in the heads of academics and activists. It can be used 24/7 by anyone around the world, regardless of whether you have access to a bank account, live in an authoritarian country with hyperinflation or simply want to store wealth for the long term.
After a decade of wild speculation and thousands of stupid cash holding experiments in the “crypto” space, people realize that Bitcoin has remained a counterparty risk.
While price fluctuations in the euro or the US dollar get the headlines, Bitcoin’s real value lies in its ability to transact and store value outside of the financial system. It’s digital gold with extra features, a beacon of hope in an uncertain economic landscape.
In conclusion, as trust in central and commercial banks continues to erode, Bitcoin is a viable alternative for those seeking financial sovereignty. It’s digital gold with extra features. The challenges posed by the internet, potential geopolitical seismic shifts and the age of social media call for a solution that can withstand these pressures – Bitcoin and the monetary principle it represents can be part of that solution.
This is a guest post by Julian Liniger. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.