Finance is a game of confidence. Everyone in a system has to believe that the system works, from entrepreneurs down to investors, holding on to the fact that each player in the industry is held to the same standard, and that in a moment of crisis, a buyer of last resort will appear.
This principle has been understood by the Central banks and judiciously followed for years. Private banks try as much as they can to avoid shaking the confidence that customers have. And individual market participants do a lot to drive home the singular message of “trust me…you can trust me!”
If eventually confidence is lost, what happens? Bank runs.
As soon as the confidence game is up, clients of the bank will begin to request their funds. When the confidence game of a central bank is made known to all, citizens will flee the currency in multitudes. A lot of times, we have seen these scenarios play out. And the outcomes are bad. Really bad.
But this isn’t restricted to just legacy finance alone.
We have seen this loss of confidence play out in the crypto industry as well. With the most recent example of FTX, and as a result of that billions of dollars of withdrawal requests were triggered. Some persons were able to get their money out, while others could not as FTX paused withdrawals. Once the bank run starts, companies are left with limited options.
You can check out the FTX situation in detail here. However, for the scope of this article, an even larger question has pricked my interest:
What happens when an industry begins to lose the game of confidence?
Originally, the “crypto industry” was just the bitcoin industry. This was the situation from the year 2009 to approximately 2014. Since then, tens of thousands of crypto assets have been created and launched. And although Bitcoin remains the king, a lot of the other assets were still able to gather attention and capital.
As the industry grew, and more sophisticated players began to involve themselves, an air of legitimacy started to fill the room. Billionaire hedge fund managers, Institutional investors, Celebrities and athletes, Arena naming rights, Daily coverage on financial news television shows. Big conference parties at fancy locations.
It was reckoned as the greatest digital show the world had ever seen.
But almost all of it was total crap. Eventually, almost every single token will be worthless. As there are nearly 0 mainstream users outside of the crypto industry.
However, it wasn’t unexpected for an industry that openly talked about “ponzinomics”? Or people who explicitly tried to create fake assets out of thin air?
The “crypto industry” got cocky and as it stands, the largest capital pools in the world have realized that the industry isn’t ready for showtime.
Regardless of all the noise, and devoid of any outside capital investment, Bitcoin has continued to shine for almost 15 years now. It has completely distinguished itself from the crypto industry. This digital currency is decentralized and used by over 200 million people around the globe. Bitcoin’s computing network is one of the single greatest engineering feats in human history which has been securing and supporting it.
In times of uncertainty and chaos, people want security and confidence. And when the confidence game is over for the crypto industry, the market will come back to bitcoin as it provides that confidence, and there is no bank run on bitcoin.
Every minute right now bitcoin maximalists are being born. There are newly converted self-custody users coming up everywhere. People are no longer asking “how high can the price of Bitcoin go,” but are more interested in “how long bitcoin will last?”
This is part is a natural occurrence in the cycle. Bitcoin steps to the forefront in our darkest moment. Providing the solution and solving the confidence crisis. On transactions block-after-block. It continues to provide a long-term-oriented savings technology that affords anyone in the world the platform to protect their purchasing power over decades.
And yes, some people might want to scream “but bitcoin’s price is down too!!!” Of course, you are right but every asset is down due to tighter financial conditions created by the Federal Reserve to destroy demand. The Fed may not have seen so much success yet in bringing inflation under control but is definitely doing a great job in bringing the prices of assets down.
If you can simply look at the underlying fundamentals and ignore the price, you’ll realize that bitcoin continues to grow stronger. Gaining mass adoption as the days unfold. The Hash rate keeps hitting all-time highs. On-chain bitcoin addresses with 0.1 and 0.01 bitcoin have also continued to hit all-time highs. Bitcoin is growing in terms of decentralization and becoming stronger.
In addition to that, the monetary policy hasn’t blinked once.
During the government lockdowns of 2020, there was no random change. Also, amidst the liquidity crisis of March and April 2020, there was no change. In the following asset bubble, there was no change either. When the Fed changed course there was still no change. During the fall of 3AC and Celsius, It did not change. There was no change too when FTX came under pressure, and neither was there any change when the price continued to dump in recent days.
Bitcoin does not care.
Its blocks of transactions are produced to be accessed by anyone in the world. Receive and send economic value to anyone who has an internet connection without involvement from a third party. The peer-to-peer electronic cash promise is still alive and well.
Bitcoin is winning the game of confidence, so we must remember why we are here.
Featured Image Source: finance-monthly.com
