Fear has become more and more palpable over the past few days; despite dramatic measures being taken by the world’s governments and institutions, the number of cases of COVID-19 has continued to skyrocket, especially in the U.S. and Europe, while the death count continues to mount.
As with any crisis, some have begun to fear for their cash savings, resulting in the start of what some are expecting to be a run on the banks.
Unfortunately, banks have started to close across the world as those institutions that remain open simultaneously limit withdrawals, proving the intrinsic value of digital bearer monies like Bitcoin and the broader crypto asset class.
U.S. Banks Begin to Shut Down, Limit Withdrawals
For a combination of reasons — the spread of COVID-19, a collapse in financial markets, the abolishment of reserve requirements for U.S. banks, layoffs, and more — consumers have begun their contingency plans. For many, that has seemingly been to run to the bank to withdraw all the cash they can.
Due to the fractional reserve system that banks use, this didn’t go over too well with the banks.
According to a March 18th report from The Wall Street Journal, banks are starting to run low on physical cash as consumers make large withdrawals of “tens of thousands of dollars [in cash] at a time.” This has resulted in multiple social media reports online of banks restricting withdrawals, which has been corroborated by press statements from companies themselves.
Bank of America is limiting cash withdrawals to $3,000. Expect that number to drop over the next few days.
— Tatiana Koffman (@tatianakoffman) March 16, 2020
The issue has been further compounded by the fact that banks are closing their doors and/or changing their hours. JP Morgan, for instance, is shutting down 1,000 Chase branches (20% of the total) to help reduce the spread of coronavirus.
Bitcoin Fixes This
Enter Bitcoin and crypto assets. As Marty Bent, a prominent Bitcoin maximalist podcaster, quipped in a recent tweet, “Bitcoin: providing better savings technology than banks since 2009.”
Indeed, Bitcoin and other digital assets, through their systems of private keys and distributed ledgers, allows any user to “become their own bank.” They who hold the private keys hold the cryptocurrency.
As long as all users keep their own coins in their own wallets, there can’t be a “Bitcoin bank run,” or government intervention to save “crypto banks” for that matter. And, as long as you have access to the internet, you can access your coins.
It’s poetic then that Bitcoin’s first block was embedded with the following message outlining the flaws of the leveraged banking system by its pseudonymous creator, Satoshi Nakamoto:
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.
Crypto In a Bank Run
What’s interesting is that Bitcoin has seemingly been used as a mechanism for keeping capital safe amid bank runs, despite its relative youth.
During the Cypriot banking crisis of 2012-2013, depositors of the island nation of Cyprus lined up at bank tellers and ATMs for days, trying to withdraw cash as the government mulled over mandatory “haircuts,” billed by some as a “bank bail-in,” on depositors with a certain level of wealth.
The value of the cryptocurrency doubled during the bank run, while trading volume tripled (from the pre-crisis average) on some days amidst the crisis, per data from the now-defunct exchange Mt. Gox. The implication: BTC was being bought by Cypriots en-masse to avoid their governments from taking their money.
But yes, whether or not the coronavirus crisis will result in a bank run isn’t clear. One thing, however, is for certain: Bitcoin and other cryptocurrencies remain a leading way out of the often tumultuous fiat system.