As the US government quietly arranged a bank buyout, the Bitcoin network hit a new all-time high for processed daily transactions – but what can this mean?
On Sunday, the Bitcoin network broke its daily transaction record from the 2017 bull run, hitting more confirmed transactions than it ever had in its 14-year lifespan. A few days later, JPMorgan Chase serendipitously acquired distressed bank First Republic after their assets had been seized by regulators.
While the collapse of First Republic – the second-largest bank failure in US history – isn’t quite related to Bitcoin’s latest record, the timing of these events may point out a more concrete direction to bitcoin’s place in the world’s economy, and the future of the crypto industry itself.
Both events come at a point in time where much uncertainty is to be had about the traditional financial system – with many regulators in the US trying to set roadblocks to prevent crypto from getting further into the wider economy. Meanwhile, the private banking sector has already been showing signs that it is unable to sustainably manage itself.
Many economists believe that the root cause behind the collapse of First Republic was, instead of the management team behind the firm, was the rise of interest rates and the US Federal Reserve’s hawkish monetary policy: the very reason which also brought down Silicon Valley Bank, Silvergate, and Signature in March. Meanwhile, bitcoin prices (and crypto as a whole) started to see market changes for the better, reaching new price highs since June 2022.
Bitcoin already has a history of sailing smoothly when the public is unsure about the traditional financial system. In fact, the economic conditions set by the first-largest bank failure in US history – Washington Mutual – gave birth to the world’s largest cryptocurrency by market capitalisation, bitcoin.
While Bitcoin lately has experienced a price dip since its most recent high, the network also had another reason to maintain popularity in use. In January, the network introduced Bitcoin Ordinals, which enables the network to support non-fungible tokens (NFTs). On Tuesday, thanks to Ordinals alone, daily network fees were hitting 23 BTC (roughly $656,000), with a daily record of 682,281 Bitcoin transactions. Since its January launch, more than 2.39 million Ordinals have been inscribed to date.
I can't believe my eyes
BRC-20 demand leading to a 700% increase in fees AFTER what we've seen with Ordinal Inscriptions
12,800% increase in fees from BEFORE Ordinal Inscriptions launched
300,000 unconfirmed transactions in the mempool pic.twitter.com/oyLceu6ODe
— trevor.btc @ NYC (@TO) May 2, 2023
As bitcoin gains another use case, it wouldn’t be a far stretch to say that if a huge milestone happens with bitcoin, something must also be going on in the wider financial market at the same time.
The Buyout and Bitcoin connection
After experiencing difficulties, fear, and plummeting stock prices after March’s banking crisis, First Republic was taken over by the Federal Deposit Insurance Corporation (FDIC) to prevent a bank run and soften the blow on the insurance fund’s reserves.
A few weeks later, the FDIC ended up selling “all of [First Republic’s] deposits and substantially all of [its] assets” to JPMorgan Chase, the largest U.S. bank, which also was provided $50 billion in financing to seal the deal. The Sunday sale was reportedly rushed through to close before markets opened on Monday, before any challenges to the sale can happen.
“Our government invited us and others to step up, and we did,” JPMorgan CEO Jamie Dimon said. While Dimon is known amongst the crypto community as one of the highest-profile fans of the “blockchain”, the CEO is also known to be a bitcoin critic.
In its inception, bitcoin was designed to be an alternate to our current monetary system, with many believing that it can be a legitimate global reserve currency like how the US dollar is today. It is popular amongst supporters as the rules behind the system are prewritten – and aren’t set by political or monied interests that can arbitrarily change it.
As bitcoin follows prewritten rules and a fixed monetary issuance schedule, many are opting to switch to the “trustless” digital currency system, as banks become more untrustworthy by the day. And current trends are showing something: believers are also choosing to use bitcoin as a “hedge” against the traditional banking system’s failures, observing that bitcoin prices have been rising steadily over the past weeks since March’s banking failure.
Although it may present itself as a typical case of fiat versus crypto, the situation may not be as simple as that. But it also may be a sign that fiat is determined to stay on its “too big to fail” policy.