The analyst at Trezor, Josef Tětek, recently commented on both what has been happening in recent days in the financial markets and the use of crypto hardware wallets.
Tětek said that recent events such as the collapse of Silvergate and Silicon Valley Bank have shown how counterparty risk in the banking system is a serious problem. The increase in this perception has also strengthened the perception of the value of self-custody.
Trezor: crypto wallet hardware to the rescue of the traditional financial system
The thing is, as Trezor‘s analyst argues, such banking-related risks are sometimes well hidden, despite the fact that they are serious risks.
He points out that in reality banks no longer hold their depository customers’ money in their coffers, but lend it to third parties or use it to buy volatile assets.
So in case they have problems collecting payments on the loans they make, or when the investments they make generate losses, there is a risk that they will no longer be able to give all their money back to their depositors.
This dynamic is unfortunately unknown to most, even to the depositors themselves who ignore such risks when they deposit their money in the bank.
Indeed, depositors are now for all intents and purposes unwitting creditors of banks, with all the inevitable risks associated with issuing those credits in the form of bank deposits.
At this point Tětek adds:
“Understandably, people are looking for alternatives such as bitcoin, which can be held entirely independently of any bank or institution. Just last year the amount of bitcoin addresses holding more than 0.1 bitcoin – a good proxy for bitcoin held by regular people in self-custody – increased by 25%, from 3.3 million to 4.1 million addresses. We expect this trend to accelerate.”
It is worth remembering that Bitcoin was born precisely during the 2008 financial crisis, presumably as a response to a system that effectively bails out the irresponsible and punishes the thrifty.
The thrifty are the bank customers who deposit their savings in bank accounts, unaware that they may lose them due to the banks’ dastardly conduct. The irresponsible are the bank managers who use their customers’ deposits for risky ventures such as investments in unsound assets.
According to Tětek, the recent bailout of Silicon Valley Bank reveals that nothing has actually changed in this respect, so much so that it is Bitcoin that provides a way out of this system.
It is worth mentioning that stablecoins have always been thought to be primarily an alternative to this system, since their value is the same as fiat currencies but they can be self-custodied, though the recent de-peg problems of USDC and DAI have brought to light the problem of lack of decentralization.
In fact, a stablecoin that is forced to hold its reserves within the banking system turns out to be merely a crypto derivative of fiat money, fully integrated into the mainstream banking system.
The only way to be able to avoid having to rely on the banking system is Bitcoin in self-custody.
The absolute most widely used tool for self-custody over the long term of significant amounts of BTC are crypto hardware wallet.
According to Tětek, recent calamitous events are reinforcing Bitcoin’s image as the only truly decentralized crypto project with zero counterparty risk if held in non-custodial wallets.
The only risk in that case, from a security perspective, is that the wallet owner does not guard it properly, but if nothing else it makes it immune to the defaults of others.
Obviously Tětek is biased, suggesting the use of crypto hardware wallet such as Trezor, but his reasoning is also shared by a great many other independent analysts.
“After the FTX collapse, people understood that custodians in the crypto space are not to be trusted. Now regular banks are collapsing as well, which leads some people to look for safety in bitcoin, which has zero risk of failure when held in a hardware wallet.
The current rise in the price of bitcoin – the fastest rise in price this year – seems to be a direct result of the apparent fragility of the banking system. So it is possible that bitcoin will emerge from this crisis as a safe-haven, risk-off asset.”
To all this it is important to add that there is always an implied financial risk to investing in Bitcoin, as its market value has shown significant volatility over time.