As members of the media lingered near the entrance of the headquarters of Silicon Valley Bank this week, a bitcoin true believer seized on an opportunity.
He drove a Budget moving van directly in front of the building’s entrance, so all could see the message plastered on the side: "BE YOUR OWN BANK,” it read, between a doctored image of Federal Reserve Chair Jerome Powell holding a "Buy Bitcoin” sign and the orange logo for the original cryptocurrency. A video of the made-for-social-media stunt, set to Pink Floyd’s Money as soundtrack, was tweeted by an account with the handle @cryptograffiti, with text that said "btc>svb.”
Following an epically awful 12 months for the cryptocurrency industry, Bitcoin evangelists are enjoying a moment - not to mention a huge rally in their favourite coin, which has soared more than 30% in the past seven days, putting the key level of US$30,000 (RM134,580) in sight. To them, the reverberations from the failure of Silicon Valley Bank only serve to underscore a key vulnerability in the fractional-reserve banking system that bitcoin was meant to fix: It’s all based on faith that your money will be there when you need it.
As the original white paper proposing bitcoin put it in the wake of the global financial crisis, the traditional system works well most of the time yet "it still suffers from the inherent weaknesses of the trust-based model.” That weakness went ignored by many in the era of low interest rates, but it’s front and centre again now.
"An environment where higher interest rates after a period of hyper-low interest rates are creating bank runs is about as perfect a bitcoin use-case as one can think,” said Stephane Ouellette, chief executive of FRNT Financial Inc.
It’s true that in the wake of last year’s series of crypto blowups, including the implosion of digital-asset exchange FTX and all the dominos in the crypto-lending space that fell after it, trust in the intermediaries of the digital-asset market is arguably as low, if not lower, than faith in regional banks. Yet nothing at all changed about the rules dictating the growth of bitcoin supply, a stark contrast to the improvisational and hard-to-predict responses from central banks and governments to the turmoil in traditional banking.
The FUD – short for fear, uncertainty and doubt that had long been targeted at crypto by traditional finance – is running in the opposite direction now.
Yet while the resurfacing of bitcoin’s origin story has given true believers a "told ya so” moment, it’s not necessarily what drove the coin’s price up during the recent banking chaos. Many in the market believe crypto is rallying not because of fear triggered by the crisis itself, but rather the aggressive response from the government and Federal Reserve that has seen hundreds of billions of dollars added to, or pledged to, the banking system and dramatically shifted the outlook for interest rates.
In other words, to use the technical jargon preferred by cryptocurrency market practitioners: "money printer go brr.”
"Given the uncertainty, we are not yet seeing mass retail or institutional inflows into the market,” said Noelle Acheson, author of the Crypto Is Macro Now newsletter. "What is moving the market is the shifting liquidity environment,” she said, and that "expectations are consolidating around a much lower rate-hike ceiling than expected even a week ago. That environment is good for risk assets, and especially bitcoin which has no earnings or credit vulnerability.”
That relative simplicity of bitcoin also sets it apart from the more-ambitious crypto projects that followed it and unleashed so much chaos last year. Its "proof-of-work” model, in which miners perform complicated computing tasks as a way to preserve the integrity of the blockchain, stands in stark contrast to "proof of stake” networks which pay yields to holders willing to lock up their coins - a model that Securities and Exchange Commission Chair Gary Gensler has said should be regulated like securities.
And newer crypto projects have shown a dependence on the very banking system that bitcoin aimed to circumvent, which has ratcheted up tensions between the old guard and the new. A heavy reliance on crypto clients contributed to the downfall of two other banks this month, Silvergate Capital Corp and Signature Bank.
Now the Blockchain Association trade group says it’s digging into allegations that digital-asset firms are being booted from the US banking system, and questions whether actions by regulators actually contributed to the recent bank failures.
Not to mention, the firehose of venture capital that once pointed in the direction of new digital-asset projects has slowed to a trickle. Even before this month’s financial drama, investments by VC firms into crypto startups had already plunged by 75% year-over-year to US$2.3bil (RM10.32bil) in the fourth quarter, according to PitchBook.
The current environment all adds up to what Ryan Watkins, co-founder of Syncracy Capital, has called a "back to basics” moment for crypto.
Not surprisingly, the many critics and sceptics of crypto remain unconvinced. After all, the past week’s rally could disappear in a flash, given the notorious volatility of bitcoin.
To Rob Arnott, a pioneer of quantitative investing and founder of Research Affiliates, bitcoin remains useless in what he calls the three main purposes of money: as a medium of exchange, a measure of value, and a store of value over time.
Still, he admits to being a bit sympathetic to the motivations of the laser-eye crowd.
"Count me as a sceptic, but one who thinks the aspirational goals of crypto are a wonderful thing because central bankers are generally shockingly clueless,” he said.
On that note, he doesn’t sound too much different than Cryptograffiti, the artist who drove the moving truck to the front of SVB’s headquarters.
"Our current, broken financial system is bitcoin’s best marketing and the Fed is its ad agency,” the anonymous artist told Bloomberg, declining to give his real name out of privacy concerns. "We need a Plan B. For me and an increasing number of individuals, bitcoin is the answer.” – Bloomberg