Let’s start with a game. You can place your wealth in System A or System B. Which would you choose?
System A: Access funds 24/7. It is impossible for someone to tell you that you cannot access your money. Your funds are not lent out without your permission. The rules of how your money is stored are written in software and unalterable.
System B: Access funds Monday through Friday, 9am to 5pm. If you support a cause that is disagreeable, funds can be seized. Funds are lent out, though you don’t know to whom or on what terms. The rules are changed often and can be opaque.
I’m guessing most of you would choose System A. However, as you probably figured out — your money is currently in System B. Fortunately, System A exists. It is the Bitcoin protocol.
“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.” — Satoshi Nakamoto
The financial system and the base layer technology it runs on are currently in acute distress. This is not hyperbole — the history of financial crises and the magnitude of each event and the subsequent monetary solutions speak for themselves. Recent weeks are rich with examples: banks made investment decisions with depositor capital trusting that the Federal Reserve would increase interest rates as forecasted. Rates were at 0% at the end of 2021 and the Fed said they would be “patient” on rate hikes. Yet the Fed ended up hiking at the fastest pace in the history of modern capital markets — rates increased 57x in one year.
Bitcoin’s price is volatile, but the system is stable — very stable. The price of US banking stocks, relatively speaking, are not volatile. But the US banking system is inherently unstable. Fractional reserve banking is inherently leverage, hence the instability. These two facts can coexist.