Here Is The Pro-Bitcoin, Anti-Bank Argument Put Out By A Former Coinbase Executive

Although it's not a novel viewpoint, one investor's anti-bank and pro-bitcoin argument is causing a stir in the wake of the failure of three U.S. financial institutions and Credit Suisse's bailout.

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Balaji Srinivasan is the co-founder of the health technology company Counsyl and the former chief of technology at the cryptocurrency exchange Coinbase. And it appears like his argument over the weekend is having an impact.

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In the early hours of Monday, Bitcoin BTCUSD, -0.08% was trading for more than $28,000. Gold GC00, 0.29%, or analog cryptocurrency, reached the highest point in 12 months and was trading above $2,000 per ounce. Bond prices were also rising.

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"Much as in 2008, bankers told lies. In one of the new, larger-than-life tweets now permitted on Twitter, he said that "the bankers, the banks, and the monetary authorities have lied to everyone dollar holders and savers this time.

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He contends that banks have used footnotes to "conceal" their insolvency. According to the Federal Deposit Insurance Corp., the U.S. banking system has $620 billion in unrealized losses on its books. In order to deal with the sudden increase in deposit withdrawals, Silicon Valley Bank parent company SVB Financial was forced to sell a collection of bonds it intended to hold until maturity. Such information was provided by SVB in a footnote, and it was also covered on an earnings call.

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When loan demand decreased because to the pandemic, Srinivasan correctly noted that banks like SVB went crazy buying long-term bonds and Treasury securities because they believed the Fed would keep interest rates low for a very long time.

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"The increase in interest rates in the 2010s after ten years of near-zero rates was an unexpected assault on every dollar holder. The kind of absurd flipflops you see in politics don't work when there are genuine contracts involved, and economics isn't politics, he added.

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According to Srinivasan, short-term Treasury buyers would suffer in the same ways that long-term Treasury holders did in 2021.

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"The major banks' (G-SIBs') 5% interest rate is a trap. For those nations whose central bankers following the Fed, the majority of fiat savings accounts are now a trap, he claims.

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He cautions against hyperinflation in previous tweets.

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Of course, his reasoning has a counterargument. Bank runs and the fractional banking system are nothing new, as the 1946 movie It's a Wonderful Life most vividly illustrates. The concept is that banks have sufficient cushions, or capital buffers, to meet high but manageable demand because banks never have enough money to serve all of their customers simultaneously.

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By definition, a crypto-focused economy would concentrate wealth in a small number of hands and undermine the middle class. Prior to the establishment of central banks, the economy was vulnerable to devastating economic cycles.