In an AMA type live video (Ask Me Anything – ‘ask me what you want’ for its acronym in English) broadcast on various platforms, Guillermo Torrealba, CEO of Buda.com said that the failure of 3 banks in such a short time is an “atypical” and at the same time “worrying” fact, but, ultimately, these correlated facts show why Bitcoin was born.
In his address, which consisted of an explanation and then a series of questions asked by the community that participated in the platforms that broadcast the “liveWilliam explained that The effect of the closure of these banks last week affected the stock markets and markets so negatively that the regulators decided to cancel the trading of this type of actions associated with the banks because they were all liquidating, and in this way, they avoided further losses. in the sector.
It also argued that, in the specific case of Silicon Valley Bank, it was a bank that mobilized about 200 billion dollars, and had little or no exposure to the crypto world. This bank was characterized rather by being a financial entity dedicated to companies in the technology sector, and he said that, for this reason, approximately 97% of the deposits circulating in the bank’s assets were not insured.
However, the FDIC (Federal Deposit Insurance Corporation) changed the regulations on this point, since before it had a cap of $250,000 per depositor and now it seems to have no maximum capsince the United States government ensures that these funds will be protected and savers will not lose their money with this closure.
At this point he made several considerations, among which the question arose as to whether these bank closures are still happening, the FDIC will continue to write off deposits from savers, which generates two aspects. One of them is a relief for savers, and in this way calm is generated for users of the system, since the money deposited in financial institutions will be guaranteed.
The other is less positive, and is that the system may be preparing for a potential bank run. If this matter is verified, it is important to keep in mind that there is a massive injection of money into the economy, since the FDIC will have to follow “generating money” to cover the eventual funds of savers.
Faced with this possibility, he expressed his opinion on the fact that Guillermo considers “the genesis of the matter”; In this sense, she recalled that, in the time of the pandemic, the Federal Reserve issued a lot of currency, and that this, in the medium term, would become inflation. Despite the observations that were made at that time, the government did not back down and gave a series of incentives to companies and individuals, in order to survive while the quarantine lasted, but in reality, these incentives have been nothing more than an impression of a lot of money in a short time.
Two years later, the United States has inflation that is generating this financial instability, and it is not surprising that this “insolvency” of Silicon Valley Bank and Silvergate Bank has been generated by all these macroeconomic conditions that the world is going through, the United States including.
It makes the exclusion of the Signature Bank since, in an unprecedented way, this bank was also affected without having entered insolvencya fact that Guillermo narrates with amazement.
Bitcoin is born to avoid these runs
In this way, the CEO of Buda.com comes to the conclusion that, Since 2008, there is an alternative to the traditional financial system. A system that is proving once again that it is imperfect and cyclically susceptible to enter into these crises.
He alleges that these great financial crises occur every 15 years on average, but with Bitcoin, this can be avoided. Bitcoin turns out to be an alternative that really gives ownership of money to the user, breaks with a traditional paradigm and is therefore being systematically attacked..
expresses that the fractional reserve system has proven to be a failed modern banking systemin which banks have been using customer funds to earn returns on instruments such as United States Treasury bonds, but by increasing these interest rates, the return falls and the ability to repay that money that the bank used for investments, did not reach the same term of liquidity requirement, which resulted in an insolvency on the part of the entity before savers.
He claims that, Although this is legal, this business model is the one used by all banks, but consider that it is not a model that represents the truth of what happens with people’s money, and this lack of sincerity is what has created a financial situation that affects thousands of saversand this model should no longer work.
The explanation of this business model led her to simple terms, with a bank deposit. A person goes to any bank to deposit cash, then explains that that cash does not go to a vault, but the bank takes the physical money and converts it into digital money. But if all the savers decide to extract the money, digitally or physically, at the same time, it is impossible for the entity to grant the funds, since with the fractional reserve system this will not be possibleand therefore, insolvency is generated.
So, if we are using pseudo digital money, well bitcoin is completely digital, and also offers the possibility of actually owning that money, in which the holder decides what to do, where to send it, where to have it and when to dispose of it.
For this reason, it points out that banks must innovate in this type of model, change from a fractional reserve system to a full reserve system model, which can be, in principle, a solution that prevents this type of event.
Bitcoin, for its part, allows users to have a better and greater financial inclusion, as well as the real availability of funds and, with the innovation of DeFi, users obtain returns for the money they decide to invest.
In such a way that the security, and mainly the ownership of the funds that Bitcoin guarantees, It has no comparison with any other financial system and, therefore, it represents a unique opportunity that must be taken advantage of so that more and more people can be part of the ecosystem. He concludes that In every crisis, new opportunities arise, and this is an opportunity “historical” that tests the financial alternatives that exclude the traditional one.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
It may interest you: