- Record debts of private banks, the US national debt, and an interest rate that is not set to decrease despite lowering inflation
- 282 American banks face a double threat: commercial real estate loans and potential losses
- 1,804 banks and other institutions tapped the emergency lending facility and currently have historical $500 billion unrealized gains
- Executives of the world’s largest companies are selling shares at record rates and moving into Bitcoin ETFs
- As the stock market declines, Bitcoin has reached $70,000
- Trump proposing the creation of a strategic national reserve of Bitcoins
- Senator Cynthia Lummis introduced a bill to purchase 1 million Bitcoins worth $70 billion
- Digital currency could threaten privacy and security, giving the US government unprecedented control over transactions
- The European Union plans to create a registry database of all citizens’ assets
- The World Economic Forum predicts a decrease in the use of paper money and the merging of financial institution markets into a single global digital infrastructure
- If the digital dollar and the removal of intermediaries are not launched in time, by 2030, the US dollar may lose its dominant position
Among the many events of recent months, including high interest rates, record private bank debts, the US national debt, record share sales, and accelerated crypto adoption, a possible vector begins to emerge.
Let’s assess how this vector might make sense, scaling the picture and consistently incorporating all recent events.
High-Interest Rates
First and foremost, we observed an interest rate that increased from 0.08 to 0.2 in February 2022, then took an exponential growth path, reaching 0.33 in April 2022 before slightly slowing down to 3.78 in November 2023. It seemed to plateau from 5.06 in May 2023 to 5.12 in July 2023, finding its true plateau at 5.33 in August, remaining at that level to this day.
Disproportionately, June’s inflation was 3%, indicating a three-month decline. However, the Bureau of Labor Statistics did not consider key factors such as volatility in food and energy prices, akin to assuming people rarely turn on lights, refuel cars, or eat.
Nonetheless, the core consumer price index decreased to 3.3%, the lowest since April 2021. Yet the FED states that although it is optimistic about declining inflation, it will not cut rates until inflation drops to 2%, and it holds it.
How Does this Rate Impact the Major Players?
This very high interest rate and its rapid increase, especially maintaining it at such a level, cause significant harm to the global economy and key banks. Specifically, Klaros Group surveyed 4,000 American banks, and 282 reported facing a “double threat” to their earnings, which logically affects their normal functioning: commercial real estate loans and potential losses due to high interest rates.
Concurrently, another crucial figure makes the high interest rate appear even more threatening. The FED says 1,804 banks and other institutions tapped the emergency lending facility and currently have historical $500 billion unrealized gains, which they must repay by May 2025.
Even if you don’t have extensive knowledge of how the economy works, the chart clearly shows how unprecedented and challenging this task will be for them if such amounts and rates.
Additionally, the speed of growth and the national debt of the United States have reached their highest levels in history, currently amounting to $35 trillion, causing concern and leading many key politicians and entrepreneurs to declare that the dollar will soon be worthless openly.
What Market Reaction are We Observing?
Warren Buffett recently sold Bank of America shares worth $2.3 billion and Apple shares worth $21 billion in May and sold shares of other large companies and banks totaling $28 billion in December.
JP Morgan recently sold its bank’s shares worth $183 million, the first time in 18 years of its leadership.
Significant players like Mark Zuckerberg and Jeff Bezos also join this mass sell-off.
As a result, the stock market is experiencing historical declines, with major players massively selling shares, making the largest bearish turn in 10 years.
At the same time, we see the largest sell-offs in the crypto industry, such as the complete sale of Bitcoin by the German government, which we wrote about earlier, not causing the crypto market to fall and being quickly absorbed. Bitcoin is approaching its all-time high of $70,000.
However, this panic also led to Bitcoin leaking from large crypto holders like Mt. Gox, ending up with the same banks and other organizations like hedge funds and pension funds, with billions of unrealized gains, which buying spot Bitcoin ETFs since May, possibly also seeking refuge from the FED.
As a final piece of this, we see an unprecedented situation where leading US politicians from competing positions and parties seem to be racing in solidarity and adopting Bitcoin regulation, insisting on making it a strategic Bitcoin reserve of the United States.
Donald Trump was one of the first to raise this issue, predictably cementing it at Bitcoin 2024.
Following this, a senator, Cynthia Lummis, introduced a bill to purchase 1 million Bitcoins worth $70 billion as a reserve just in the next few days.
Kamala Harris is trying to change the vector of the Democrats and Biden’s policy, seeking meetings with key crypto companies, which you can read here. Possibly, she realized that it would not be possible to take Bitcoin away from Trump as a pre-election move and that it would be better to focus on the rest of the crypto.
So, What Could All This Mean?
It is possible that the world’s largest economies will first want to acquire central cryptocurrencies to have the highest degree of control over them and create their tokenized national currencies, depriving all others of any power.
The IMF says central bank digital currencies (CBDC) can replace cash: ‘This is not the time to turn back,‘ this can be done faster if the controlling amount of Bitcoins stops being distributed among free big and small holders.
Then, it will be possible to do the following: The European Union consider creating a registry of accounts, which will be possible if the above is achieved, where all assets of each citizen, including cryptocurrencies, will be listed. This will allow freezing accounts, mainly if a person conducts a transaction outside of CBDC.
The same happens in the US, where decision-makers directly voice similar statements. Despite Federal Reserve Chair Jerome Powell stating in March that the possibility of launching a digital dollar in the US was slim to none – Republicans warn in advance of massive privacy and security issues, and an electronic currency could give the US government unprecedented control over transactions. Donald Trump also opposes this, advocating against the creation of CBDC.
However, while insisting on freedom and privacy for private investors and crypto enthusiasts, they also openly speak about Bitcoin’s strategic importance and its mass accumulation by the state, which, if successful, does not prevent anyone at the helm from implementing those mentioned above.
Even Banks Will be Redundant?
The most interesting thing is that in this scenario, neither private Bitcoin holders nor banks are needed, as excessive intermediaries for transactions, accounting, and money storage will no longer be required. As mentioned above, this is exactly what the FED puts in a desperate position with its interest rates.
Also, to adhere to actual figures and consistent logic in all this, we can look at the 2018 World Economic Forum report, predicting the reduction in the use of paper money and the merging of financial institution markets into a single global digital infrastructure.
Digital money issued privately or by central banks – and decentralized ledgers proliferate with implications for monetary and financial policymaking. In countries where changes are rapid, the growing fintech industry is providing specialized financial services using a range of digital innovations, including those that supply credit and payment services to households and businesses through online platforms. Acceptance and adoption of cryptocurrencies will continue to spread. These developments will bring together markets, institutions, and infrastructure in a multipolar, complex, and interconnected world, which will challenge the conduct of monetary policy and have implications for financial stability.
Today’s centralized global monetary and financial system – featuring a dominant US dollar – mutates into a world with multiple reserve currencies and financial powers of influence, mirroring the shift from the British pound to the US dollar as the reserve asset. As economic importance traditionally leads finncial and monetary pre-eminence, the euro and renminbi are likely to gain importance alongside the US dollar and increasingly meet the world’s demand for the reservecurrencies and safe assets.
Summary
Given all this, we can make some assumptions, the validity of which we may be able to verify very soon.
The world’s leading economy is accumulating record debts, and the leading reserve currency is losing its position. Major banks and other institutions are taking on historically significant loans, which will be incredibly challenging to repay.
Although inflation is formally decreasing, the FED is not cutting the rate, making the repayment of the aforementioned loans a more realistic task, leaving a high probability that most major banks will simply collapse and be acquired by central banks.
In the same way, along with American banks, the FED is putting all other banks in the world at risk, as well as the savings of all the economies of the world and each of their citizens.
Against this backdrop, the stock market is rapidly falling, and the biggest players are systematically selling stocksworth billions of dollars while many are actively buying Bitcoin ETFs.
However, we are also witnessing an unprecedented consolidation of political forces and accelerated adoption of Bitcoin. Almost immediately after the announcement of the creation of the Bitcoin US Treasury Reserve, corresponding bills are being proposed.
And if we look at the 2018 World Economic Forum report, it seems everything is going according to plan, and we are smoothly moving towards CBDCs, where accusations against the FED of incompetence may be completely incorrect.
On the contrary, if we assume that we are indeed on the verge of a globally planned, rather than gradual and fair, redistribution of resources and the position of the FED is the main instrument in this—then they are doing an excellent job of taking control from everyone at once.
From ordinary holders to the largest private investors and even former partners, namely banks, who helped maintain this control for a long time and acted as a counterweight to decentralized finance and crypto until the states were ready to take crypto into service.
Conclusion
It looks like we, crypto investors and common crypto holders, are caught between the struggle of state and private financial systems and are going to pay for it at our expense, thus depriving us of the resources to resist later.
While the market seems chaotic and the right pro-crypto politicians rush to fix it, we may soon see incomparably greater chaos. This could be aimed at provoking everyone to sell Bitcoin and hand it over to the state, causing us not to show the patience needed to assess the real consequences.
Remember, this is not financial advice or an absolute truth but one of the possible assessments of the situation, in which the market may reflect several opposing but sequential interests, the obviousness of which may come after a series of actions by each side, which have been over-saturated in recent months and make us think about some patterns.
In any case, we need to exercise a lot of critical thinking and common sense before finalizing all the real possible interests of all parties involved. Regardless of the final scenario, we are undoubtedly at the peak of a historic moment in the financial system’s evolution and need to pay a lot of attention to each move.
