What Bitcoin Did: Bank Runs, Bailouts & Bitcoin
The latest bank crisis has caused investors to move into a number of safe-haven assets. That includes U.S. Treasury notes and bonds, as well as gold. But cryptocurrencies have been a surprising winner as well.
Part of the surprise in the 30 percent jump in Bitcoin in recent weeks is the fact that the failed banks have been heavy in the tech and cryptocurrency sector. However, there’s a reason why the cryptos themselves have done well.
The reason is that cryptocurrencies are decentralized. That means there’s no single point of potential failure. A mismanaged bank can fail, and in so doing, prevent depositors access to their capital.
The bank failures have also brought to mind the 2008 financial crisis. That was the period where the Bitcoin white paper was first written. Designed as a peer-to-peer payment system without a counterparty, the premise of Bitcoin seems designed for a crisis like today’s.
Now, cryptocurrencies seem poised for further gains. That’s because banks will get bailed out. More capital will move onto their balance sheets. The prospect of higher inflation for longer will continue.
Cryptocurrencies themselves aren’t part of that system. They don’t get bailed out. That can mean some wild swings, and that investors who buy at the wrong price can get hurt. But as a way for taking counterparty risk off the table, cryptos may have the last laugh.