The twenty-first century has been filled with financial hardship and fears that our money is not safe. The Great Financial Crisis of 2008 and the COVID-19 pandemic made Americans feel stressed and uncertain about the future. Increasingly, Americans have also felt the rising costs of most goods and services over the past year.
When people feel unsure, their first step is to google for advice. Last month, the question “Is my money safe?” I reached her highest levels Since 2020 and before that in 2008.
Bank management operations have made headlines in recent months as panic began to set in. reported a 77% of Americans have experienced anxiety about their financial situation at the beginning of 2023. and approx 80% of young people in the United States Use social media to learn about finances. The world of money is in limbo, and people are looking to the internet for tips on how to keep their money safe.
Is this just another headline-driven craze, or is there more to it? Here we look at the financial panic of the new millennium and the myriad factors that brought us to this point. And we look at the role of bitcoin in the potential mitigation of concerns.
Beginning of the End
Many people, including author Michael Lewis, have identified the 1980s as a turning point on Wall Street. It was then that the traders started to be more aggressive and greed pushed them more. And it was this mood that prompted traders to start engaging in riskier bets.
Book by Michael Lewis 2010 The Big Short It tells the story of how a seemingly risk-free business strategy pushed the American economy off a cliff. In essence, the big financial institutions bought home loan assets that were pooled together. Assuming these homeowners will faithfully pay their mortgages, these assets will earn payments for decades. Nobody looked at who the lenders were. No one questioned the upward trend in house prices. They assumed the money was safe.
But in 2006, lenders began to default in droves. And those loans, highly rated, were worthless by 2008. All in all, the value of $1 trillion had plummeted to zero overnight, and the participating banks were in trouble. The US Treasury bailed out the very institutions that led to the crisis. In many ways, they had to. Banks that should have been subject to people’s pensions, 401 thousand, their life savings. If banks failed, so did the people who used them.
While the details of this event are difficult to understand, the overarching meaning is clear. Large organizations can make mistakes and be forgiven, but individuals cannot. The people who caused the GFC made millions, while the taxpayers covered their losses.
And in 2009, amid headlines that countries would go on to bail out banks, Satoshi Nakamoto mined the Bitcoin genesis block.
in his book The price of tomorrowJeff Booth explained how bailing out the bank didn’t actually fix anything. It’s just kicking the can down the road. Indeed, the Treasury Department’s actions hardly amounted to a slap on the wrist. Why would anyone change their business practices if they knew the government would step in to bail them out?
That’s why, as we fast forward to 2023, Silicon Valley Bank is no exception, just another domino.
The Fed knew that SVB engages in risky practices Since the 2021 review. Unfortunately, they haven’t had enough time to reverse the investments they made during 2020 and 2021 when interest rates were so low.
The COVID-19 pandemic has created an economic situation not seen in 100 years. Uncertainty is at an all-time high as the entire world grapples with a new threat that is both real and widespread. It was more than just a failing economic system, as it was in 2008. In 2020, we feared for our lives and safety. The stock market has been noticed, the most Dramatic incidents to go on a date.
In response to hardships, world governments have borrowed $19.5 trillion To help keep businesses and individuals afloat. And that’s as of January 2021. In addition, the Fed cut interest rates to zero, and it floated near there for over a year. There has never been a better time in recent memory to borrow money to buy expensive homes, cars, and other things. Anything that required a loan from the bank was gold.
Between 1973 and 2023, the US dollar lost 84% of its purchasing power. $100 today equals about $14.80 in 1973 dollars. There are several factors at play here.
In normal times, the Fed aims for a near healthy inflation rate 2% annually. They claim this helps keep employment and prices stable. in 2021, economic inflation It was at 7%, in 2022, 6%, and in 2023, 6% so far. So if everything at the grocery store seems more expensive, or in smaller portions, than before, that’s because it is.
Major central banks have printed $25 trillion since 2008 according to the Data obtained by Finbold. The greater the money supply, the lower its value. This is simple economics.
Facility with stagnant wages, rising costs, rising debt, rising unemployment, it’s safe to say money is not safe. Throw in some bank failures and we’ve got a big account on our hands.
Light at the end of the tunnel?
Anyone who has followed the fallout from SVB so far has likely followed Bitcoin’s rally as well. Bitcoin is up 42% since the March 10, 2023 SVB failure. But more importantly, Bitcoin has separate from the S&P 500 For the first time since September 2021. Considering Bitcoin is emerging from the GFC fires, this is a major test for the digital currency.
Bitcoin’s supply is 21 million BTC, and there is absolutely no chance of more. It is a decentralized network, which means that no one person can unilaterally decide to do anything, such as print more money. Users can access it regardless of location, send it to people instantly, and keep their records straight and secure. It has all the characteristics that anyone who fears inflation, government intervention and bank failure would find very attractive.
Having seen so many banks this year already, it only makes sense to fear for your money. If banks don’t have money, they can’t give everyone access to their money. Bank and Fed spokespeople keep telling people that everything is fine. But it wouldn’t be the first time they publicly reassured everyone that things didn’t fall apart, even when they were falling apart in private.
Cryptography exists outside of this system, which does not mean that it is immune from its effects. Individuals around the world have turned to Bitcoin as a hedge against inflationary currencies in their home countries. People in Venezuela, Argentina and Mexico have turned to cryptocurrencies as a way to save for the future.
And while the currency fluctuations affected her net worth, it was a positive one. Because unlike an inflationary currency, which always goes lower, Bitcoin has a chance to go higher.
Is your money safe?
Withdrawal from the current financial system is impossible at present. In order to be able to pay rent and buy groceries with cryptocurrency, a traditional bank account would be necessary. But anyone trying to save for retirement or fill their rainy fund may feel uneasy about the US dollar. Moreover, housing prices are stagnant or drop, and stocks began to falter, too. Most traditional approaches to wealth fail, and it is difficult to say when they will recover.
If Bitcoin continues to persevere, this could be a major turning point for both the community and the cryptocurrency. Once Bitcoin is widely used, its value should stabilize, and volatility should decrease. And once Bitcoin becomes more popular, it will be easier to use. Thus, it will become more attractive, as one will not have to exchange currencies when traveling, for example. We’ll see network effects expand in real time.
But Bitcoin is not perfect either. If we’ve learned anything, it’s that every surge met a decrease. And we don’t always know when either will happen. Sometimes the oldest wisdom is true. Diversify your assets It is the best way to manage risk.
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