Torrent Dashes Down Three Thousand Feet, Bitcoin Is Debt-Free Money
Yesterday, the crypto market was affected by the financial panic in the US stock market, and Bitcoin once fell sharply below 20k, with a maximum drop of more than 8%. Soon, Silicon Valley Bank was closed by the California Department of Financial Protection and Innovation (DFPI), and the Federal Deposit Insurance Corporation (FDIC) was appointed as the receiver of Silicon Valley Bank. Overnight, Bitcoin quickly rebounded from below 20k to around 20.5k.
The sudden surge was suffocating. The sudden plunge is daunting.
Everyone said that it was Silicon Valley Bank's fault.
A small local bank in the United States that has never been famous in the crypto industry just became widely known.
But how can they have any crypto business?
It just took a lot of savings from Silicon Valley start-up companies, most of which were used to buy MBS.
MBS, Morgage Backed Security, the "good" stuff the Federal Reserve is buying. Security should be on the same level as U.S. debt, right?
Fed, big bro.
Commercial Bank, little brother.
Follow the big brother, eat the big brother's meal, drink the big brother's soup, and play the big brother's game.
But the big brother stopped playing for a long time, and switched from quantitative easing of buying, buying and buying to tightening policy of selling, selling and selling.
What's more, the big brother paid for it, and he paid for the notes printed by himself.
The little brother followed, using the depositor's dollars.
Depositors' deposits are the liabilities of the bank.
Depositors suddenly want to withdraw money, but the U.S. dollars have been used to buy MBS. This leaves no money to pay depositors.
So a run on occurred.
Crypto people are inexplicably surprised: Why can this buddy "misappropriate" customer funds (deposits) to "invest" (buy MBS)?
They had just experienced the thunderstorm of FTX, and they were still in shock.
What FTX did, isn’t it just misappropriating customer funds (cryptos) from the exchange to invest in Alameda (quantitative investments, etc.)?
Why is it a moral issue for FTX to misappropriate, but it is only a technical issue for commercial banks to misappropriate?
How can a commercial bank legally misappropriate client funds?
In fact, not only commercial banks can legally misappropriate client funds, but also many financial institutions, such as insurance companies.
Isn't one of Buffett's investment secrets to use the huge float of several insurance and reinsurance companies on hand to make equity investments, so as to obtain huge financial returns?
Float is the money that the customer has handed over to the insurance company, but has not been used for insurance claims.
However, the ingenuity of Buffett's business model is that the insurance money is locked in for a long time, while the return on investment targets is more liquid. On the surface, it seems that Buffett's investment is long-term. In fact, his investment funds are longer-term than investment assets. Long and short are relative. Long-term debt with short-term investment are safe.
Commercial banks such as Silicon Valley Bank and Silvergate play the opposite. Their funds are highly liquid, but their investment targets are long-term oriented. On the surface, it seems that MBS and U.S. bonds are high-quality assets that are long-term safe and highly liquid. However, when the Federal Reserve enters a counter-cycle, your sellings will become realized losses, which is equivalent to passively locking positions. At this time, the high liquidity on the capital side has become a fatal poison. Short-term debt with long-term investment often die suddenly due to liquidity exhaustion.
The entire business model of modern finance is "(legal) misappropriation".
By moving liabilities from the liability side of the balance sheet to the asset side of the balance sheet, liabilities are transformed into assets.
In modern finance, liabilities are assets and assets are liabilities.
This is the financial alchemy of modern finance.
When liabilities disappear, assets disappear with them. It's like electron-positron colliding and annihilation together.
Before 1971, the US dollar was a voucher for gold. Gold is the money and the dollar is the voucher.
The U.S. dollar after 1971 is a liability of the United States. The dollar becomes a liability, and the dollar becomes an asset.
America cannot pay off its debts. When the United States pays off its debts, that is when the dollar disappears.
The creation of 1 dollar also creates a liability of 1 dollar. When $1 of debt is paid off, 1.x (x is interest) dollars needs to be paid back.
So, where did the extra 0.x dollars come from? It must come from new liabilities. Because the dollar is a liability.
The problem is, spend all 1.x dollars and annihilate 1 dollar of liabilities. That leaves a net debt of $0.x, which cannot be repaid because there are no more dollars to pay the debt, and the US goes bankrupt on the spot.
Pay off the debt, the end is bankruptcy.
If you don't pay back, you have to continue to overissue dollars.
It is too simple to choose one from the two options. Anyone of the 7 billion people on earth as the president of the United States will know. The answer is definitely to issue more and more.
1 < 1.x
Cannot Fed Chairman Powell understand this simple inequality?
He is not confused. He's just pretending to be confused.
No matter how tough he is like an eagle, it's nothing more than severe appearance, but weak inside.
Watch the crab with cold eyes, see how long it will run wild?
U.S. dollar assets that are liabilities are counterfeit currency.
Bitcoin is not a liability and does not require repayment. It is a pure asset, a real money.
Extra: The full book of "History of Bitcoin" has been released on leanpub https://leanpub.com/history-of-bitcoin
nostr: npub1dlwqsauewd56dekrnuxh8xukvg7pgeelwp39qah8ts5x28tmf7pqp5tcp3 twitter: @liujiaolian https://twitter.com/liujiaolian
(Disclaimer: The content of this article does not constitute any investment advice. Cryptocurrency is a very high-risk product, and there is a risk of going zero at any time. Please participate carefully and be responsible for yourself.)