IS THE U.S. BANKING CRISIS AN ATTEMPT TO UNDERMINE CRYPTO?

Originally, I intended to publish The Cassandra Hypothesis Expanded (Part II) today, but given the gravity of events happening in the US banking sector, I decided I needed to put my comment on the record. Specifically, I suspect that the unfolding crisis is being deliberately engineered to undermine crypto and pave the way for a CBDC.

Silvergate: America’s most crypto-friendly bank goes under

Last week, we saw what many in the cryptocurrency space had long expected - the demise of Silvergate. This was a significant blow to the crypto sector, especially in the United States, given that it was one of the few banks that were enthusiastic about crypto (apparently, stemming from one of its founders catching the Bitcoin bug back in 2013). By 2022, many crypto-related businesses, including a number of major US exchanges, including Coinbase and Kraken, were heavily reliant on its services. Needless to say, the loss of Silvergate is going to cause real headaches for companies trying to operate in the crypto space, especially stateside.

Now, the Silvergate drama was, as I mentioned, already somewhat expected. There had long been speculation regarding potential regulatory failures and exposure to bad actors like FTX. But, even so, for a long time, I’ve suspected that Silvergate may have been allowed to ‘dig itself into a hole’ by regulators who wanted the business to fatally compromise itself. Of course, losses due to exposure to the likes of FTX can also be blamed largely on regulators turning a blind eye to suit an overarching agenda (for more on this, check out an article I wrote for CryptoSpinners back in November 2022 - Down the FTX Rabbit Hole: a Grand Conspiracy to Kill Crypto).

Silicon Valley: America’s most VC-friendly bank fails

Then, much more 'out of the blue', we got the collapse of Silicon Valley Bank. Despite most people never having heard of it, it turns out this bank was extremely important. While, in terms of overall size at least, it might not be one of the biggies, it was used by a very significant percentage of US and international VC-funded startups. Indeed, it turns out it was founded by a group of entrepreneurs who realized that venture capital-funded tech startups needed a bank tailored to their specific needs. This also means that the balance sheet and assets of the bank look very different from those of other, more traditional institutions. After all, the bank couldn’t sell loans and other services to its clients - they simply didn’t need them - but it still needed to make its deposits work and earn. In a nutshell, this resulted in an extremely cash-rich bank that nevertheless, found it hard to make money from that cash.

This brings us to Silicon Valley Bank’s collapse. Without going into too much detail, it likely resulted from the bank tying up much of its balance in low-yield, long-term, fixed investments. Considering the financial realities of the US from 2020-2022, this is unsurprising. After all, the Biden administration and Federal Reserve had completely unhinged the natural economic forces with their unprecedented intervention in response to the COVID-19 pandemic. Most likely, there simply weren’t many options open to Silicon Valley Bank at the time. Does this mean there wasn’t gross incompetence and greed at play? Nope, not at all. There was probably plenty of it. But, I can’t shake the feeling that, just like Silvergate, the general conditions had been engineered on high - a vast trap had been laid, if you will.

Is a crypto collapse being engineered?

And, my gut tells me, this vast trap isn’t being laid just for two banks, but rather for the entire crypto (and related tech) sectors. Sure, at first this seems crazy - why would the US government want to torpedo its own economy, especially the potential unicorns in Silicon Valley? Well, if you take a huge step back and look at the big picture, it becomes clear.

The national debt of the United States of America is colossal. In fact, it's so big, that the specific numbers have become meaningless. Any other country, faced with such debt, would long ago have collapsed under the pressures of hyperinflation. But, the US is different, because the US dollar is the world’s reserve currency. So, while the US is, like all countries, suffering from relatively high inflation, it can continue to raise its debt ceiling and continue to print more money, without risking hyperinflation. As long as there’s enough international demand for US dollars it can inflate away its own debt and maintain the balancing act. And, while most international debt is denominated in, and most international trade is conducted in US dollars, then there will be that demand. But, the rapid adoption of crypto, and especially stablecoins, threatens this US hegemony.

Hence, the biggest threat to US power isn’t the Russian or Chinese militaries, but crypto and stablecoins. Though they can’t publicly admit it without revealing how vulnerable they really are, the US political and traditional financial establishment knows it is in a fight to the death with these technologies. It's not really a matter of ideology at this point, but rather survival. If the US effectively loses the power granted by controlling the global reserve currency, it will immediately face a debt tsunami. It would quickly face a crisis of a similar nature to the final days of the Soviet Union, but of orders of magnitude greater. It would include economic and social collapse, territorial disintegration, and an immediate loss of military power (as in the collapse of the USSR, troops would go unpaid and equipment unmaintained). The fact that more people don’t see what a precarious position the US is now in, is down to a combination of ignorance and normalcy bias - after all, the United States is by far the world’s richest country, right?

So, within the space of 12 months, we’ve had the collapse of the Terra Luna ecosystem (and all the collateral damage that caused, like the demise of Celsius and Voyager), the FTX debacle, and now the crypto-friendly banking crisis. Collectively, that destroyed a large chunk of the crypto economy, including what many considered to be the most promising algorithmic stablecoin, TerraUSD. It also severely damaged public trust in crypto and related tech - something the mainstream media seemed only too eager to catalyze. And, now, in the first quarter of 2023, we’ve already seen the world’s second-biggest stablecoin, USDC, briefly unpeg from dollar, and much of the critical infrastructure relied on by crypto businesses go up in smoke. At this point, let's not forget the way the founder of Alameda Research and FTX, Sam Bankman-Fried, has been treated with kid gloves by the mainstream media, regulators and politicians alike - despite being masterminding what is potentially one of the biggest frauds in US history (and possibly helping trigger the Terra Luna collapse).

Watch out, it’s a trap!

If you don’t think this all looks very suspicious, then I’d like to talk to you about an exceptional piece of land I’m selling on Aepyornis Island. But, it gets even fishier when you consider the Biden administration’s response to the current banking crisis. Previously, the FDIC insured all US bank deposits up to a maximum of $250K (despite not having nearly enough funds to do so), but now, in effect, the US government has said all funds are protected. Okay, they haven’t said it in as many words, but the insinuation is clear. Due to the nature of their clients (VC-funded startups), around 96% of accounts at Silicon Valley Bank were not fully covered by the standing FDIC guarantee - with most having millions or even billions of dollars at risk (Circle, the parent company of Coinbase, and issuer of USDC, is reported to have well over $3 billion in its Silicon Valley Bank account).

Why is this a problem? I mean, isn’t it great that the government has guaranteed the deposits - hasn’t it averted a crisis? Well, on the surface, it's great for those companies who were at risk of losing their money. At least in the short-term, that is. But overall, it's a disaster. Actually, it’s more of a ‘controlled demolition’ (where have you heard that before?). You see, while everyone knew that the US government wouldn’t let the biggest banks fail, it has just effectively promised to guarantee trillions more dollars across a plethora of smaller regional, specialist, and so-called ‘shadow’ banks. This is a huge problem. Not only does it place a completely unrealistic financial burden on the already strained federal budget, and hence guarantee more money printing and so even more inflation, but it’s also going to encourage more risk-taking and reckless behavior. As I said, they are engineering a crisis - it is a trap.

And, what is the goal of this trap? Simple and yet vast. It is to create a financial crisis to which the government can then present a solution - a solution in the form of a CBDC (central bank digital currency). By the time the CBDC is fully launched, the public and business community, fed up with inflation and crises, will welcome it with open arms. Of course, in the meantime, the crypto sector, in the US at least, will have been eliminated, leaving Americans with no alternative. I’ll leave it there for today, but if you want to find out more about what I think of CBDCs, check out Central Bank Digital Currencies: the Wolfpack in Sheep’s Clothing.

Then again, if the Cassandra Hypothesis is correct, the financial crisis and threat of CBDCs, like the current wars, could all be part of a smokescreen for something even bigger. More on that soon…