- According to Binance CEO, Changpeng Zhao, Bitcoin’s status as a safe haven will become apparent when the ailing banking system fails and the population recognizes the value of Bitcoin.
- Zhao rejects the fact that Bitcoin has failed as a safe haven due to the price slump equivalent to the stock market.
In a blog post published yesterday, Binance CEO, Changpeng “CZ” Zhao, discussed a controversial question currently facing the crypto space: Is Bitcoin a safe haven in times of crisis? Right at the beginning, CZ states that he is “not worried” about cryptocurrencies as a whole, as the fundamentals have not changed.
As he continues to explain, there is a big difference compared to the financial crisis of 2008. It was not linked to a pandemic. As a result, the dynamics and psychology of the crisis is different. CZ also points out that only about 1 in 1000 people own or accept cryptocurrencies, so Bitcoin and others are not yet useful in the pandemic situation:
When people fear the doomsday of empty shelves in stores and a shortage of food, people will want to hoard cash. So there’s increased demand or pressure of people wanting to sell their investments (stocks or crypto) into cash, again in the short term.
Likewise, people who have hoarded money will reinvest it when the pandemic is over, and they have not spent it, according to CZ.
Bitcoin solves the problems of the ailing banking system
Regarding the question of why the exorbitant amounts of money printed by central banks worldwide have not yet had any effect on the stock or crypto market, CZ points to the inefficiency of the markets. The money has simply not yet reached the people affected:
These changes take time to propagate in the economy. Changes don’t happen immediately when a mass population is involved. There are other more practical aspects of speed. Due to inefficiencies in fiat transfers, it takes time for people to deposit money into crypto exchanges to buy Bitcoin. There is always a delay in the market.
As for the debate about whether Bitcoin is a safe haven, he says that the truth is nuanced and that no one can expect Bitcoin to rise when the Dow Jones index crashes or Bitcoin to crash when the Dow rises. Basically, however, he says, the entire financial system is broken, so it is only a matter of time before the benefits of Bitcoin become apparent:
Fundamentally, I believe the current (or what I usually call the legacy) system is broken. And bitcoin fixes this.
Insolvent banks are considered too big to fail by governments around the world. The collapse of a bank can result in billions in losses being passed on to retail investors. In addition, it is much easier to print new money than to let banks go bankrupt and have to deal with the question of debt.
CZ gives the example of the notorious Lehman collapse in 2008, when the bank had a debt of 680 billion dollars backed by only 22.5 billion dollars of capital, a shortage of 660 billion dollars to compensate retail investors. With several banks going bust, it is much easier for central banks to “print 2 trillion if it can restore investor confidence”.
Ultimately, however, this is a veiled theft from the taxpayer. Unfortunately, as CZ states, very few citizens are aware of this:
With printing money, the taxpayers are robbed (made poorer) indirectly, but they don’t complain much. At least, not as much as if a bank failed, such as Lehman, then everyone knows exactly who to blame, which CEO/regulator/politician failed, etc. When printing money this way, everyone saves face and is happy, except for the poorer retail guys. But they don’t know anything, do they, so it’s ok.
Bitcoin addresses this fundamental problem:
With crypto, it’s different. No government bailouts, at least not by printing money. This breaks the cycle.
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