Wyoming Blockchain Coalition president Caitlin Long has responded to the current unrest within the cash markets by analyzing the systemic fragility of the normal monetary sector as in contrast with Bitcoin (BTC).
In a Medium weblog put up published on Sept. 25, Long made the argument that “at a systemic level, the traditional financial system is as fragile as Bitcoin is antifragile.”
Damage “control”
Writing within the wake of final week’s weak point within the repo markets — which prompted the Federal Reserve to briefly inject $75 billion in money to maintain charges inside its goal vary — Long argued that the incident represented “a modern version of a bank run.” She continued:
“And it’s not over yet. Stepping back, it reveals two big things about financial markets: first, US Treasuries are not truly ‘risk-free’ assets […] and second, big banks are significantly undercapitalized. The event doesn’t mean another financial meltdown is necessarily imminent […] since the brush fire can be doused either by the Fed, or by the banks raising more equity capital.”
The liquidity squeeze — which pushed in a single day repo charges to as excessive as 10%, effectively north of the Fed’s goal 2-2.25% vary — had been triggered by the coincidence of company tax funds and Treasury settlements falling on the identical date.
Yet fairly than being a one-off occasion of remarkable, unlucky strain on the lending markets, Long notes that that is the fourth such episode for the reason that 2008 meltdown.
She critiques the Fed’s assertion this June — made on the event of the publication of its most up-to-date bank stress tests — that “the financial system remains resilient,” arguing that the proclamation “strains credulity.” She additional notes that:
“A staggering amount of US greenback liabilities have been issued offshore in current many years and the Fed not solely doesn’t management them however can’t measure them with any diploma of accuracy.”
Bitcoin: an insurance coverage coverage in opposition to systemic instability
This inherent obfuscation — notably obvious in relation to highly rehypothecated assets comparable to U.S. Treasuries — was importantly conceded by the Chairman of the CFTC, Chris Giancarlo throughout questions following a 2019 speech. He remarked that:
“At the heart of the financial crisis, perhaps the most critical element was the lack of visibility into the counterparty credit exposure of one major financial institution to another. Probably the most glaring omission that needed to be addressed was that lack of visibility, and here we are in 2019 and we still don’t have it.”
In conclusion, Long makes the case that whereas commentators steadily level to risky value efficiency in relation to Bitcoin, it’s considerably extra steady systemically:
“Bitcoin’s price is highly volatile, but as a system, it is more stable […] Bitcoin is not a debt-based system that periodically experiences bank run-like instability. In this regard, Bitcoin is an insurance policy against financial market instability. Bitcoin is no one’s IOU. It has no lender of last resort because it doesn’t need one.”
Earlier this month, crypto fund govt Travis Kling argued that that the precise properties of Bitcoin make it an distinctive hedge in opposition to financial and monetary irresponsibility from central banks and governments globally.
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