From Lehman Brothers to First Republic Bank: Bitcoin’s rise in uncertainty

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With the recent banking turmoil, ongoing recession and ‘signs of another global economic crisis,’ cryptocurrencies are – once again – emerging as an alternative way to hold one’s assets, with bitcoin being one of the most popular ones. 

As financial institutions falter, customers increasingly seek alternative monetary avenues, with bitcoin frequently reaping the rewards.

Last month’s upswing of the leading cryptocurrency, for instance, followed a recent banking upheaval, which included First Republic Bank (FRB), Silvergate Bank, SVB, and Signature Bank crises.

Consequently, Bitcoin’s optimistic narrative has been thrust back into the limelight. 

However, one aspect remains unequivocal: between the financial crisis of 2008 and 2023, the world’s first cryptocurrency has evolved into a mainstream asset. 

Blast from the past

The 2008 financial crisis manifested as a confluence of elements, culminating in the disintegration of prominent financial establishments, a steep stock market decline, and an ensuing worldwide recession. The contributing included:

  • The subprime mortgage bubble: The ebb and flow of the US housing market was driven by an influx of subprime lending, which encompassed loans extended to borrowers with less than stellar credit ratings. As housing prices began their descent in 2006, numerous subprime borrowers defaulted on their loans, resulting in a swift escalation of foreclosures.
  • Reckless risk-taking by financial institutions: Banks and other financial entities engaged in risky endeavors, including heavy investments in mortgage-backed securities (MBS) and collateralized debt obligations (CDOs). The housing market’s collapse led to a sharp decline in the value of these assets, inflicting substantial losses upon the institutions in possession of them.
  • Insufficient regulatory measures: The financial sector functioned within a feeble regulatory framework that neglected to address the hazards posed by intricate financial products and the interconnectivity of international financial institutions. This oversight deficiency exacerbated the crisis’s gravity.

The tumultuous period saw the bankruptcy of esteemed financial organizations, such as Lehman Brothers, alongside extensive government bailouts and a global recession. 

The International Monetary Fund (IMF) reported a 0.6% contraction in the global economy in 2009, with advanced economies facing a 3.4% contraction. The crisis precipitated widespread job losses and impacted economic growth and income inequality.

The birth and evolution of Bitcoin

Amid the 2008 crisis, the innovative concept of Bitcoin emerged. In October of that year, an individual or collective operating under the pseudonym Satoshi Nakamoto published the seminal Bitcoin whitepaper, unveiling a decentralized, peer-to-peer (P2P) electronic cash system.

This digital currency was ingeniously crafted to operate autonomously from central banks and governments, providing a potential alternative to the traditional financial infrastructure that had proven so fallible.

One of the primary advantages of Bitcoin was its capacity to bolster financial stability by mitigating the risks associated with centralized financial institutions. 

By functioning on a decentralized network, Bitcoin could eradicate single points of failure, rendering it less vulnerable to crises akin to those that beleaguered the conventional banking system in 2008.

Bitcoin garnered attention primarily from a niche community of technologically adept enthusiasts and early adopters in its embryonic phase. 

Nevertheless, after the 2008 crisis, Bitcoin gradually gained traction as a digital asset and an alternative to conventional currencies.

The currency’s inaugural real-world transaction transpired in 2010 when a programmer named Laszlo Hanyecz procured two pizzas for 10,000 bitcoin. 

By 2013, bitcoin’s value had soared past $1,000, and it continued to garner attention as an alternative investment vehicle.

Bitcoin’s potential as a safeguard against economic uncertainty became increasingly evident during the European debt crisis. 

As nations such as Greece, Italy, and Spain confronted severe financial challenges, bitcoin witnessed a surge in demand from investors seeking to shield their wealth from the instability of traditional markets.

By 2013, the volume of daily bitcoin transactions had swelled from a mere few hundred to over 50,000, reflecting the burgeoning interest in this digital currency. 

Since that time, the landscape has evolved considerably. As of May 16, bitcoin has recorded 526,379 transactions per day, suggesting that the cryptocurrency has grown increasingly stable and resilient over time.

The 2023 banking crisis

The recent banking crisis witnessed the downfall of three of the largest US banks, marking the most significant failures since the Great Depression. The causes of their collapse were manifold and can be primarily attributed to the following factors.

First, all the banks suffered substantial losses on their balance sheets due to bad loans, investments in high-risk assets, and diminishing market values. 

Second, as the economy grappled with uncertainty and low-interest rates, banks’ income from interest and fees dwindled steadily, impairing their ability to generate profits. 

Finally, the public’s trepidation and waning confidence in the banks resulted in a run on deposits as customers withdrew their funds, further undermining the banks’ financial standing.

The disintegration of Silicon Valley Bank and Signature Bank reverberated throughout the global financial system, precipitating widespread economic chaos. 

The stock market experienced a cataclysmic crash as the collapse of these banks incited a massive selloff, causing the Dow Jones Industrial (DJI) and the S&P 500 indices to plummet by over 20% in the ensuing weeks. 

Concurrently, a credit crunch emerged as banks tightened their lending standards in response to the crisis. Consequently, credit became increasingly scarce, making it difficult for individuals and businesses to secure loans and finance operations.

As the crisis unfolded, governments worldwide were compelled to intervene and implement measures to salvage the floundering banks and restore faith in the financial system. 

This intervention included bailouts, liquidity support, and the introduction of new regulations to avert similar crises in the future.

Lastly, the banking crisis precipitated a global economic slowdown, as businesses and consumers curtailed spending and investment in reaction to the uncertain economic climate.

Bitcoin’s evolution as a safe haven

In contrast to the 2008 crisis, the 2023 crisis saw bitcoin playing a more significant role as a potential safe haven asset. 

With a market cap of over $523.5 billion trillion as of May 16, bitcoin has matured considerably since its inception and gained widespread acceptance as a viable investment option. 

Its performance has surpassed traditional assets like gold, earning the nickname “digital gold” and solidifying its position as the fastest-growing asset in the history of finance.

Initially viewed as a fringe alternative to conventional finance, bitcoin has matured into a recognized and respected asset class, providing stability and security amidst global financial turmoil.

With its limited supply of 21 million coins, a decentralized structure, and immunity to factors contributing to the banking crises, bitcoin has attracted a new wave of institutional investors and high-net-worth individuals. 

Its increasing recognition as a legitimate asset class further emphasized Bitcoin’s expanding maturity. In 2020, the Office of the Comptroller of the Currency (OCC) in the United States issued guidance allowing banks to hold cryptocurrency assets on behalf of their customers. 

In September 2021, El Salvador became the first country to adopt bitcoin as a legal tender, further validating its status as a mainstream financial instrument. 

In the same year, several countries, including Nigeria and Tanzania, expressed interest in exploring the potential of digital currencies.

Bitcoin adoption, milestones, and more 

Between the 2008 and 2023 crises, Bitcoin experienced significant technological advancements and expanded adoption. 

The Lightning Network, an off-chain solution designed for faster and more affordable Bitcoin transactions, gained traction, boasting over 17,500 active nodes and a capacity exceeding 5,500 BTC.

Decentralized finance (DeFi) platforms built on Bitcoin, such as Stacks, witnessed substantial growth, offering users alternative financial services beyond traditional banking systems. 

Concurrently, the regulatory landscape surrounding cryptocurrencies evolved, with governments worldwide implementing more precise rules and regulations for the industry. 

This heightened regulatory clarity helped legitimize bitcoin as an asset class and stimulated greater institutional adoption.

The year 2021 proved to be a watershed moment for bitcoin, as evidenced by the launch of Canada’s first Bitcoin ETF, the Purpose Bitcoin ETF, and JPMorgan’s creation of a bitcoin exposure basket for its clientele.

By 2021, the number of active bitcoin addresses exceeded 1 million. Major corporations like Tesla and MicroStrategy started adding bitcoin to their balance sheets. Payment processors like PayPal and Square began facilitating BTC transactions, driving its adoption.

By November 2021, the leading cryptocurrency reached an all-time high of over $68,789 per coin, reflecting growing investor confidence. Technological advancements followed suit, activating the Taproot upgrade to enhance the coin’s privacy, scalability, and smart contract capabilities.

In addition, Visa collaborated with BlockFi to launch a bitcoin rewards credit card, rendering it even more accessible for everyday use. Consequently, active bitcoin addresses surged to over 1.3 million, with over 8% of Americans reporting cryptocurrency ownership. 

These developments exemplify bitcoin’s rapid evolution and increasing integration into mainstream finance and commerce.

The road ahead

The forthcoming Bitcoin halving in 2024 is anticipated to drive the cryptocurrency’s price to new all-time highs. Even after the volatile movement and a sharp decline in price the digital asset saw since 2020, experts suggest it could reach or even exceed $100,000. 

Historical data from prior halving cycles underpins this optimistic outlook. Each cycle has consistently resulted in a new all-time high for bitcoin.

The first halving cycle culminated in bitcoin reaching $1,170 (November 2013), followed by $19,400 in the second cycle (December 2017), and more recently, $68,789 in the ongoing third cycle (November 2021). 

Bitcoin price prediction algorithms indicate that the digital currency will achieve $100,000 next year. The 2024 halving event will trigger the next significant bull run in the crypto market.

Additional factors beyond the halving are projected to contribute to bitcoin’s upward trajectory in 2024. 

A prominent crypto analyst Tone Vays predicts that inflation, interest rates, and a potential recession will prompt people to lose confidence in the conventional financial system and turn to bitcoin as a more dependable store of value. 

Vays envisions bitcoin surpassing $100,000, potentially reaching $200,000 approximately a year after the 2024 halving.

While this prediction may appear exceedingly optimistic, industry figures such as BitMEX co-founder Arthur Hayes and Kraken CEO Jesse Powell have likewise expressed their belief that bitcoin could eventually achieve $1 million.

In conclusion, the odyssey of bitcoin, from its inception as a fringe alternative to its current status as a recognized financial asset, demonstrates the transformative power of innovation and resilience. 

As the world navigates the complex landscape of financial crises and economic uncertainty, Bitcoin’s potential to serve as a safe haven and an alternative financial solution takes center stage. 


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