On Sunday, as the U.S. government worked behind the scenes with two major banks to engineer the latest financial rescue plan, the Bitcoin network hit a new all-time high for the number of daily transactions processed. There were more confirmed transactions than it ever had in its 14-year history, beating the previous record set during the 2017 bull run. Today, JPMorgan Chase has acquired First Republic after the distressed bank’s assets were seized by regulators, becoming the second-largest bank failure in U.S. history.
While the two events – Bitcoin’s surging use and the latest example of U.S. financial calamity – are not exactly related, the timing here does suggest something about the future of the crypto industry and bitcoin’s possible place in an evermore-dysfunctional economy. At the same time regulators and legislators are working to lessen crypto’s inroads into the wider economy, the private banking sector is showing itself to be unable to manage itself.
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After weeks of uncertainty and a slumping stock price, First Republic was taken over by the Federal Deposit Insurance Corporation (FDIC) in a bid to prevent a possible bank run, further contagion and a drawdown of the insurance fund’s reserves. The federal banking watchdog immediately sold “all of [First Republic’s] deposits and substantially all of [its] assets” to JPMorgan Chase, the largest U.S. bank, which was also provided $50 billion in financing to complete the deal. Democratic politicians are likely to challenge the sale, which was reportedly rushed through to close before markets opened on Monday.
“Our government invited us and others to step up, and we did,” JPMorgan CEO Jamie Dimon said. Crypto fans may know Dimon as one of the highest-profile advocates of “blockchain” and long-time bitcoin critic. First Republic’s failure is second only to Washington Mutual, which failed during the Great Financial Crisis that also gave rise to bitcoin. While some amount of blame could be put on First Republic’s management, economists are largely aligned in thinking its collapse is at least partially due to rising interest rates and the Federal Reserve’s hawkish monetary policy that also brought down the Silvergate, Silicon Valley and Signature banks early this year.
Where this situation aligns with bitcoin in particular is that the crypto industry is part and parcel of a wider political realignment towards populism. Crypto is not the only movement challenging the authority of central banks and established powers, as many people will see the First Republic bailout as another example of profits being privatized while losses are socialized. In trying to prevent a massive drawdown on FDIC reserves, political operators have essentially said that all U.S. banks are too big to fail – a type of moral quandary that protects a certain class from the consequences of their decisions.
Bitcoin has emerged as an alternative monetary system, which many think could eventually serve as a legitimate global reserve currency like the U.S. dollar is today. The system is attractive to some because it follows prewritten rules, including a fixed monetary issuance schedule set by social consensus (unlike the political and monied interests that rule the greenback). Bitcoin’s price rose steadily during the last cycle of banking failures, and might also catch a wave up this time. This doesn’t necessarily mean bitcoin is a “hedge” against financial calamity, or that people are choosing “trustless” financial systems over increasingly untrustworthy banks.
The timing of the Bitcoin blockchain’s latest milestone is purely incidental. Bitcoin transactions have been trending up since the launch of Bitcoin Ordinals, which enabled the network to support non-fungible tokens (NFT). More than 2.39 million Ordinals have been “inscribed” to date, according to Glassnode’s data cited by Blockworks. But, even though Bitcoin NFTs now account for roughly half of the transactions on the network (rewarding bitcoin miners with increased transaction fees, and potentially helping secure Bitcoin’s long-term “security budget”), not all bitcoiners are aligned in thinking this is a worthwhile feature.
See also: Bitcoin Is Apolitical, but Won't Be Much Longer | Opinion
There are many bitcoin purists who think the network should be preserved for monetary uses and that tradable digital collectibles are frivolous. Sorry for them, Bitcoin is an open-source network – meaning people are free to use the technology as they please. If Bitcoin has a role to play in the future global economy, it’s only because people are free to use it how they want.