For several years, the international banking sector has assured depositors that there will never again be a financial crisis like that of 2008. To support this claim, they say that stress tests make the banking sector healthier than ever. They also say that deposits are safe, even if the worst happens.
Sadly, consumer bank and Federal Reserve assurances are starting to fall flat.
Sudden closure of The First State Bank of Barboursville in West Virginia on April 3rd, is being seen by some as a sign that the next financial crisis is here. The only question is, are they right?
Will the Coronavirus Cause a Global Financial Crisis?
It is common knowledge that the creation of Bitcoin was a direct response to the 2008 global financial crisis. Proof of this rests with a cryptic message left by Satoshi Nakamoto in the original Bitcoin genesis block. This message reads:
“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
Until recently, though, a new economic crisis has begun to seem unlikely. Just a few weeks ago, U.S. unemployment was at its lowest in a generation. Furthermore, the stock market was performing at all-time highs as recently as November.
Sadly, as of April 2020, everything is changing.
Why a New Financial Crisis Now Looks Likely
Taken alone, the collapse of The First State Bank of Barboursville in West Virginia is not itself a warning sign of financial disaster. What is worrying, though, is the fact that this collapse follows an official video from the U.S. Federal Deposit Insurance Corporation (FDIC), warning people not to withdraw their savings from U.S. banks.
Video Link: https://www.youtube.com/watch?v=jdjzIaEDTnw
Neither are FDIC warnings the only alarm bells suggesting that a new financial crisis is imminent.
- Since the start of the Coronavirus crisis, over 10-million Americans have begun filing claims for unemployment relief.
- Home lenders are currently expecting at least 15-million people to soon start defaulting on mortgage payments.
- Economic analysts like Alvine Capital’s Stephen Isaacs, are warning that the Coronavirus crisis will result in a recession worse than the Great Depression.
- Estimates suggest that millions of small businesses like restaurants will start going bust by May, due to negative cash flow.
- Most Americans have savings of less than $2,000 for emergencies.
- 2019 already saw increasing rates of credit card defaults among U.S. millennials.
It is also important to remember that the Coronavirus crisis is global. As a result, there is potential for major global supply chain disruption in the near future.
How will Bitcoin and Cryptocurrency Perform During an Economic Crisis?
In March, a Bitcoin flash crash sent shockwaves through the cryptocurrency community. However, as the dust settles, some are once again arguing that Bitcoin and other cryptocurrencies are the safest stores of wealth during an economic crisis.
At present, the Federal Reserve is printing in excess of $4 trillion in what it calls ‘liquidity injections,’ to shore up the U.S economy. However, printing money in the form of quantitative easing diminishes the value of the U.S. dollar itself.
While many are praising the U.S. for its fast action (at least, concerning the economy) quantitative easing can’t go on forever. When quantitative easing does, it inevitably results in Venezuela-like hyperinflation.
Unlike the Dollar, Bitcoin is Deflationary
Those who believe that Bitcoin can be used to hedge against inflation do so because Bitcoin is deflationary.
Unlike with the USD, it is not possible to print Bitcoin out of thin air. Rather, the number of Bitcoin entering circulation diminishes over time. This happens to ensure that Bitcoin stands the best possible chance of retaining value, even during financial market downturns.
Bitcoin Can Not Be Confiscated by Banks
As well as being deflationary, many argue that Bitcoin is a safer store of value than regular cash because Bitcoin is free of bank control.
In the case of The First State Bank of Barboursville in West Virginia, customers are being given an assurance that their deposits are still safe. However, past crises in places like Cyprus prove that this isn’t always the case. Thankfully, while banks can confiscate and lose cash deposits during economic crises, wealth stored in Bitcoin is always safe. All that remains to be seen is whether the closure of The First State Bank of Barboursville is a one-off event, or whether more closures will soon follow.
The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.
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