Bank Consolidation Threatens Freedom, Makes Case for Bitcoin
The developing world’s case for bitcoin is beginning to resonate in the developed world.
I, like many, have long argued that it is easier to explain bitcoin to people living within dysfunctional economic and political systems than to those from stable, developed economies like the United States. Such populations have PTSD from past hyperinflation. Equally important, they often have first-hand experience of how banks can act as gatekeepers to their money.
I will always remember an image I was greeted with when I moved to Argentina in 2003 in the middle of the ongoing banking shutdown imposed during the financial crisis: Buenos Aires bank branches encased in impenetrable cages to protect them from angry customers, their steel walls adorned. with graffiti against “banqueros ladrones” (thieving bankers). It should come as no surprise that a decade later, after the banking crisis had run its sad, inevitable course toward profligate fiscal and monetary solutions that fostered perpetual double-digit inflation, Argentina became a hotbed of bitcoin adoption and crypto-innovation.
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For now, I don’t see US and European banks being forced into the same Argentina-style shutdown. But the current banking crisis, which has introduced a new source of uncertainty for developed economies, points to a more subtle but arguably more dangerous threat to freedom that also underlines the importance of bitcoin.
That threat does not necessarily come from the Federal Reserve or other central banks being forced to pursue a loose monetary policy that becomes inflationary. (Those who buy Balaji Srinivasan’s wild bet on $1 million bitcoin price by June 17 are missing the point that, to begin with, collapsing banks equals collapsing money creation—ie, the crisis will have a deflationary effect, not an inflationary one. Only if the Fed should the Weimar Republic go full force, this effect would be offset by massive money printing.)
Rather, it is linked to the other part of the developing countries’ experience: society’s vulnerability to the centralized control that banks exercise over people’s savings and transactions. As they oversee the lifeblood of an economy, banks have a unique, corruptible power.
The core issue is not that people’s deposits are at risk, that there is too little federal insurance or bailouts to go around, although the problem of there being a natural limit to that important backstop is another argument for bitcoin. It is the concentration of banking power that fearful depositors are now enabling by pulling their funds out of small regional banks and transferring them to a few behemoths: Citibank, JPMorgan Chase, Bank of America, Wells Fargo, et al.
What bothers me about this right now, however, is not the systemic risk, but the broader problem that a state-backed banking oligarchy is taking shape. These institutions amass collective censorship power over transactions, positioning themselves as illiberal gatekeepers of human behavior. This risk is compounded by the special SIFI (systemically important financial institution) status that the largest banks were granted in the regulatory response to the 2008 crisis.
The SIFIs are “not really, in the traditional sense, private enterprises,” Galaxy Digital’s head of research, Alex Thorn, said on this week’s episode of our “Money Reimagined” podcast. “They work with a specific government charter, with specific government obligations and protections… [The government] can tell the banks what they can and cannot keep and what they can and cannot do. I think that centralization is really acute at the big level, and the solutions that have been put forward to this type of crisis really only drive it further in that direction.”
Observers are calling this “Operation Choke Point 2.0”, an allusion to an unofficial Obama-era policy in which banks were pressured to restrict access to the financial system for businesses such as arms dealers and pornographers. Regardless of the Securities and Exchange Commission’s spate of recent lawsuits against industry leaders and regardless of what some people in the broader population think of “crypto bros,” there is nothing inherently illegal about being a digital asset service provider. As with the Obama-era dragnet, this “shadow ban” on legal but politically unfavorable activity is rightly seen as a violation of these entities’ rights, which is probably why governments never formally admit that such policies exist.
The thing about public agencies making these private businesses do their dirty work is that it allows the public agency plausible deniability, making it difficult for victims of discriminatory enforcement actions to take their case to a judge. The Fed’s banking supervision provides “guidelines” to bank compliance officers, not explicit instructions. It is a deliberately ambiguous extra-legal strategy, one that you will find prevalent among authoritarian regimes.
To be clear, I am not saying that the US has become authoritarian, but that the development of these conditions is a path towards it. We have to keep our eyes open for it.
What is at stake is much more than whether crypto firms can write and deposit checks. It is that when banking becomes concentrated among a few huge, highly regulated institutions, a very real threat to human freedom arises. Without the capacity to transact, people can be blocked from engaging in many otherwise legal activities that are distasteful to the powers that be.
For bitcoin to be important, it doesn’t need a huge number of people to use it. What matters is only its existence as an alternative. The fact that the option is there for people if and when they need it makes it harder for bankers and governments to limit freedom.
Two decades ago, Argentines did not have a way out of the banks’ trap. Now people do. It’s a game-changing situation.
