Bank Runs, Bailouts & Bitcoin with Caitlin Long - WBD633

Caitlin Long is the Founder and CEO of Custodia bank. In this
interview, we discuss the events that have led to three banking
failures within a week, one of which saw the biggest bank run on
record. We talk about anti-crypto coordination involving the US
government, the inherent instability of the traditional finance
system and how this is another signal that the game is up.


- - - -


As the saying goes, to lose one bank may be regarded as a
misfortune, to lose two banks looks like carelessness. How should
we regard the loss of three banks within a week? To the
uninitiated, this may look like a contagion, but it’s the impacts
of two different systemic problems affecting two different
markets: crypto and fiat. What it lays bare is the hypocrisy and
instability of the traditional financial system.


The failures of Silvergate and Signature are rooted in the 2022
implosion in crypto. Precipitated by the collapse of Luna, we all
know what followed: a nest of over-leveraged, hypothecated and
fraudulent investments that fell like a house of cards. Who knows
when it will end. Regardless, more recent failures seem to have
been expedited by coordinated government action.


The obvious signal from the levers of power is that crypto is
bad, and traditional finance is good. But what should have been
an opportunity for the government to present the perceived
weaknesses within digital asset markets, was significantly
undercut by the biggest bank run in history: Silicon Valley
Bank’s customers were withdrawing more than $1 million per second
for 10 hours straight a little over a week ago.


The sorry mess is actually a clear vindication of Bitcoiners'
assertions that both crypto and fiat are both fundamentally
unstable. The search for yield is endemic. The management of risk
is too often criminally deficient. The argument is that narrow
banking (full reserve banking) will suck deposits from risky
banks, making risky banks even riskier, increasing systemic risk.


However, the system is becoming increasingly dysfunctional. Moral
hazard seems endemic. Increasingly large bailouts are being used
to keep the game going. The aim is to maintain the illusion that
the financial system is stable. It is anything but, and everyone
knows it. We’re entering a period on unknown risks. The time to
change the rules of the game has long passed.