Confidence in central and commercial banks is rapidly eroding. Internet and social networks are oil on the fire and Bitcoin is the extinguisher.
This is an opinion editorial by Julian Liniger, co-founder and CEO of Relai, a bitcoin-only investment app based in Switzerland.
‘Trust us bro’ as the only tool left
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 the rich and powerful benefit from this protection. As we saw in 2008 and since then, the regular taxpayer is footing the bill.
It is ironic that Credit Suisse, which emerged as one of the winners of the 2008 financial crisis, is among the first banks to bite the dust in this current crisis. Between 2008 and 2023We have seen plenty of scandals, constant litigation, terrible risk management, and endless drama, slowly eroding trust in a once prestigious institution.
So who has to pay the price for this? You were right: everyone in Switzerland does it! The Credit Suisse bailout (although nobody officially calls it a “bailout”) it is estimated that it will cost Swiss taxpayers a staggering 109 billion Swiss francs ($13,500 for every man, woman and child in the country).
Like those of commercial banks, the decisions and actions of central banks are only effective when people trust 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. They ridiculed anyone by warning of the consequences of ultra-low interest rates for years and unhinged balance sheet expansions during COVID-19.
Now, the affirmations meant to calm us down have come back to haunt them. Yellen famously said in 2017 that “we would never see a financial crisis again.” lagarde he was reluctant to explain how to tackle inflation on a talk show and just said that inflation will come down in “its due time”, only to now go crazy by the “monster” that is inflation.
It is becoming increasingly apparent that while politicians and central bank officials like to tell the masses that they have many tools at their disposal, the only means left to them is a constant “Trust us, brother.”
The ‘trust scheme’ doesn’t work in the age of social media
As confidence in the banking system and possibly the financial system in general fades, and bold words of comfort prove to be nothing more than hollow phrases, it is not surprising that the fragility of it all simply increases. Given this fact, it should also come as no surprise that (among other things, such as a steady deterioration in reputation) Tweets and WhatsApp messages triggered the run on the Credit Suisse bank. Similar to how the run on Silicon Valley Bank (SVB) was set in motion by public warnings from influencers within the start-up scene, such as Peter Thiel.
What may seem like an unfortunate coincidence is a symptom of a broader crisis of confidence. Establishing a joint narrative, common belief and direction is much more difficult in 2023 than, say, the 1970s. Instead of weekly newspapers and magazines, we now have news that spreads in seconds. And expert opinions and opposing viewpoints go viral on Twitter, Reddit and elsewhere in a matter of minutes.
We can see that bank runs in the digital age are different. Scared people don’t need to walk up to a branch and ask for their money. They can do it from their homes. What makes matters worse for banks in the fractional reserve era is that tens of thousands of people can do it simultaneously.
Will this lead to a domino effect of centralizing banks because trust in banks, especially smaller ones, is rapidly eroding? The message Yellen sent after the collapse of SVB was loud and clear: We decide on a case-by-case basis whether smaller banks are worth bailing out. Go to big banks like JPMorgan Chase to be safe because we won’t let those banks die. The trend of smaller banks being taken over by big ones is accelerating like never before.
This shows that not only is our money unfit for the Internet age, but the institutions and Powells, Yellens and Lagardes of the world are unable to keep up with the pace and complexity of their environment.
More centralized planning and constant intervention in markets cannot be the answer. Assuming that the people who brought us here can show us out is naive.
The money printer will go again Brr… And then?
Despite (unofficial) government bailouts like the one we’ve seen with Credit Suisse, politicians and central bankers around the world are caught between a rock and a hard place. They face a difficult balancing act between raising interest rates to control inflation and maintaining liquidity in the banking system.
On the one hand, they have to raise interest rates. They need to control inflation somehow and burst the “everything bubble” that drove the price of everything from stocks, real estate and luxury watches to NFTs and thousands of “crypto” projects in recent years.
On the other hand, they need to ensure sufficient liquidity in the banking system, so that the wheel can continue to work. While no official mouthpiece wants to use the term “bailout” again after 2008, what is happening in the US and Switzerland with Credit Suisse is just that. It all comes down to what made people angry in 2008: Banks know they can make long shots, so they do. And when shit hits the fan, they save themselves with taxpayer money.
The money printer will roll again, casting even more doubt on the promises of central bankers and politicians. The reason is simple: there is no other solution in the tools of central bankers in the age of unlimited fiat money backed by nothing but promises and big talk.
The question is not if our money will depreciate, but how quickly. In any case, the current speed is incredible even in the richest countries in the world, such as Germany. With price inflation currently at 8.7%, it will take eight years (!) for the value of money to halve in the Federal Republic of Germany. In it United Kingdom and Austriawe are currently seeing inflation rates above 10%, not to mention countries like Argentina either Turkeywhere hyperinflation (price inflation above 50%) is the order of the day.
Opt out of Bitcoin, get out of counterparty risk
tidjane thiamwho became CEO of Credit Suisse in 2015 and served until 2020, famously called bitcoin a bubble in November 2017: “As far as we can identify, the only reason today to buy or sell bitcoin is to make money, which is the very definition of speculation and the very definition of a bubble.”
Back then, the price of bitcoin was around $7,000. The rest is history and irony.
Thiam didn’t seem to understand or didn’t want to understand why people buy an asset like bitcoin: they want to opt out of the trust scheme described above. They are looking for ways to make a financial contrarian bet and get out of the financial system entirely. It is ironic and sad that we need events like the fall of formerly prestigious institutions like Credit Suisse to make the case for Bitcoin clear for skeptics like Thiam.
Now, more and more people are realizing why Bitcoin exists and what it can do for them: keep their wealth in an asset that no one can degrade, not the government, not the CEO. An asset that no one can censor, that is difficult to confiscate and that cannot disappear in the midst of a crisis.
Political movements like Occupy Wall Street made headlines during the 2008 financial crisis. Fifteen years later, we know it went nowhere. On the other hand, Bitcoin is healthier than ever as a movement and as 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 they have access to a bank account, live in an authoritarian country experiencing hyperinflation, or simply want to store wealth for the long term.
After a decade of wild speculation and thousands of stupid cash-out experiments in the “crypto” space, people realize that Bitcoin has a fixed counterparty risk.
While price fluctuations in euros or US dollars grab 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 added features, a beacon of hope in an uncertain economic landscape.
In conclusion, as confidence in central and commercial banks continues to deteriorate, Bitcoin is a viable alternative for those seeking financial sovereignty. It’s digital gold with added features. The challenges posed by the Internet, potential geopolitical seismic shifts, and the age of social media demand a solution that can withstand these pressures: Bitcoin and the sound money principles it represents could 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.
