As the “too big to fail” mentality of financial institutions erodes, can Bitcoin’s pioneering decentralization save our wealth?
This is an Op-Ed by Nikolay Denisenko, Co-Founder and CTO of Brighty, a Swiss fiat and crypto banking app.
For years, the global centralized banking and finance industry has held a “too big to fail” sentiment. Big-name banks and financial institutions still share the confusing ideology that they are too big and interconnected with national economies to fail and, in the event of financial failure, governments and regulators would bail them out.
The recent US banking crisis is no different. Once again, a large corporate bank failed to balance its deposits and investments, leading the government to step in and inject enough cash flow to allow all consumers to keep their deposits.
Economic crises and recessions lead to government bailouts, often through taxpayer money. To me, this is a clear indication that the legacy centralized financial system is failing, as a handful of elite bankers control the global economy, overreacting and unbalancing their financial operations without taking any real responsibility.
So what is the solution? As we have repeatedly seen, the only winner to come out of a banking crisis so far is decentralized finance: or, more specifically, Bitcoin.
BTC: shining bright when traditional finance fails
We often think of Bitcoin just as an investment tool, like stocks and shares. But Bitcoin is the essence of decentralized finance: a limited, supply-capped currency built on a transparent peer-to-peer network that is beyond the control of any centralized entity or individual.
In fact, the leading cryptocurrency was created for incidents like a banking crisis. The development of Bitcoin occurred in the context of the Great Financial Crisis of 2008, when the cost of US bank bailouts was estimated to reach $498 billion. At the time, there was a clear feeling among working people that both the government and centralized financial systems were working against them. This feeling was the engine of Bitcion’s innovation: the first block of the network even had a code inscription that included“Foreign minister on the brink of the second bailout for the banks”.
This is why we tend to see a bitcoin price rally every time there is a major financial crisis. For example when BTC prices increased during the Cypriot financial crisis in 2013. Similarly, in 2016, when Brexit caused the collapse of the European financial markets, BTC rallied. Besides, who could forget bitcoin? reaching its all-time high price in 2021during the economic turmoil caused by COVID-19?
This time, the scenario is similar. On March 10, before news of the Silicon Valley Bank crisis broke, bitcoin was trading at around $20,000. Since then, the cryptocurrency has reached over $28,000. Key market players hedge their funds in bitcoin: in particular, Binance likely contributed to the buying pressure by convert $1 billion in BUSD to BTC.
The leading cryptocurrency’s decentralized infrastructure, limited-supply, censorship-resistant, and intermediary-free features make it a much more reliable financial instrument during an economic crisis.
Transparency and trust win the votes
Trust is the engine of traditional banking and finance. We entrust our deposits to financial institutions so that they keep them and invest intelligently. We rely on central banks to hold low volatility assets as a hedge against fiat currency to control its value and inflation. Trust is the only element that has allowed centralized economies to develop and prosper for centuries and, in many cases, it is blind.
With Bitcoin, trust is built through transparency. As the first decentralized network, Bitcoin has the largest developer ecosystem and the most distributed network of miners, hence its high hash ratewhich makes it highly resistant to any malicious attack or security issues.
In addition, the Bitcoin source code is open and transparent, allowing developers from around the world to examine, audit, and contribute to its development. This collaborative approach to development helps identify and resolve potential security issues more effectively compared to other cryptocurrencies.
Therefore, every time traditional financial institutions fail, consumers shift their trust towards Bitcoin, and this will continue to happen until centralized authorities change their lopsided and often aggressive monetary policies.
What does the future hold for Bitcoin?
Despite its growing adoption and transparency, the leading cryptocurrency still suffers from volatility, ultimately setting the standard for how much people can trust this digital asset. Therefore, it is unrealistic to say that Bitcoin will replace the traditional centralized financial system in the near future.
However, as bank failures and economic crises become more persistent, trust and adoption of Bitcoin continue to grow. As a result, we will continue to see more financial ecosystems built on this decentralized network, more traditional businesses incorporating BTC, and more consumers embracing the leading cryptocurrency, not only as an investment option but also as a financial instrument for trading, earning, and transacting.
It is also apparent that Bitcoin will go through numerous regulatory scrutinies as its adoption increases. But eventually, this will bring more trust to the decentralized currency. It is also likely that we will see more developing countries like El Salvador accept bitcoin as legal tender.
Overall, despite its volatility, bitcoin is headed in a positive direction and its future is full of intriguing promise.
This is a guest post by Nikolay Denisenko. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
