There are many accusations that Cryptocurrency is a complete scam and blockchain-backed technologies are mostly scams. There have clearly been large scams in the area of cryptocurrency.
Crypto companies and exchanges have failed, There has been hacking, theft, and fraud. The algorithmic stablecoin Terra failed last year.
In December 2022, JPMorgan Chase Institute reported that the number of people who transferred funds into a crypto-related account tripled during the pandemic, rose from 3 percent of the population in 2020 to 13 percent in June 2022.
The total global cryptomarket cap reached a high of about $3 trillion and then fell to $800 billion and is now at $1.18 trillion.
The global financial system has nearly $500 billion in assets. The global financial system is 400-500 times larger than crypto and blockchain.
FTX losses are still be sorted out but are in the range of $8 billion. In 2023, the traditional financial system has seen the failure of Silicon Valley Bank and Signature Bank. First Republic Bank and Credit Suisse have required various bailouts. Over $80 billion of shareholder and bondholder value was lost in the failure of these four banks. There is hundreds of billions of government and other bank support and credit lines.
Signature Bank had become mostly a crypto-related bank. Crypto losses and crypto valuation losses were major factors in Signature’s failure. However, the long-duration bonds and mortgages losses from higher interest rates have been the main factor weakening the global financial system. This caused the most vulnerable and poorly managed banks to fail first.
The absolute value of US and global financial losses are higher in the regular financial system. The percentage of losses and particularly scam and fraud losses are higher with crypto assets and exchanges. However, the current regular banking crisis is still just starting.
Scams, fraud and price crashes are problems with all financial assets and systems.
Managing a Financial System for Stability Instead of Profits for Those Able to Influence Regulations
Canada was the only G-7 country to avoid a financial crisis in 2008, and its recession was milder than those it experienced in the 1980s and early 1990s. For the last six years, the World Economic Forum has ranked Canada first among more than 140 countries in banking stability. It’s not just one-time luck. If you define “financial crisis” as a systemic banking panic — featuring widespread suspensions of deposit withdrawals, bank failures, or government bailouts — the United States has experienced 12 13 since 1840, according to a recent study by Charles Calomiris, professor of finance and international affairs at Columbia University, and Stephen Haber, professor of history and political science at Stanford. That’s an average of one every 14 and a half years. Canada has had zero in that period. Its largely export-driven economy has seen many recessions, and even some notable bank failures, but it has almost completely avoided systemic problems.
What’s Different in Canada?
The financial systems of Canada and the United States provide the same basic services. The striking difference is in how they are provided. America has one of the world’s more fragmented financial systems, with almost 7,000 chartered banks and a legion of regulators. Depending on its charter, an American bank can be regulated by the Fed, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, or state regulators — and that’s just the list for banks. By contrast, Canada has just 80 banks, six of which hold 93 percent of the market share, according to the International Monetary Fund.
Canadian banks solved the bank run problem with no central bank. Scholars have chalked this up to a few things.
1. Canada’s banks were inherently less risky because diversification helped them absorb shocks.
2. Canada’s banks could respond to depositors’ demand for cash by printing their own currency backed by general assets.
3. Canada’s bank system’s high concentration facilitated coordination in emergencies. The Canadian Bankers Association, a private consortium of
banks, established a fund to honor notes issued by failed banks and arranged takeovers of failing banks when our country was enduring the panics of 1893 and 1907. As a result, note holders and depositors rarely experienced losses. Competing banks had an incentive to prevent such losses because, in a highly concentrated banking system, a single failure would be bad for everybody. In exchange for support, they policed each other to prevent excessive risk-taking.
The US Federal deposit insurance, created in 1933, originally applied only to small banks. It was added to the Glass-Steagall Act of 1933 at the last minute to gain support from Henry Steagall, the powerful representative from agrarian Alabama. The Act was the culmination of no fewer than 150 attempts over the previous 50 years at passing a federal deposit insurance system for small banks.
During the Great Depression, the Canadian prime minister launched the Royal Commission on Banking and Currency to consider a central bank. The Bank of Canada was started in 1935. Deposit insurance reduced bank runs in the United States. Deposit insurance wasn’t instated in Canada until 1967. There was very little regulation of the Canadian banking system until 1987. There were two Canadian bank failures in the early 1980s. They were the first bank failures in 60 years. The United States had 79 bank failures in the 1970s alone. The US savings and loan crisis of the 1980s and 1990s was the failure of 32% (1,043 of the 3,234) savings and loan associations (S&Ls) in the United States from 1986 to 1995.
The precursor to OSFI, Canada’s current regulator, had just seven bank examiners in 1980, compared with thousands of examiners in the US. When OSFI was established in 1987, it encompassed most financial activity, including off balance sheet activities.
US financial deregulation moved additional funds out of the banking system. In Canada, the reverse happened; after walls between securities brokerage and banking were removed in 1987, Canada’s banks absorbed securities brokerages, mortgage lending, and other activities.
Shadow banking activities are about 40 percent the size of Canada’s economy, compared with 95 percent in the United States.
The standard mortgage in Canada isn’t the 30-year fixed, as it is in the U.S., but a five-year mortgage amortized over 25 years.
A 1% increase in interest rates reduces the value of a fixed instrument (bond or mortgage) by 1% X fixed years of durction. If that instrument had to be sold to cover a demand for deposits. A 30 year fixed would lose 30% of its value. A five year fixed would lose 5% of its value. Silicon Valley Bank had about $90 billion in ten year mortgage back securities and other ten year fixed instruments.
Financial Problems and the Fall of the Roman Empire
A combination of severe inflation, barbarian invasions, debasement of the currency, civil wars, and destruction of farms, crops and cities all forced administrators to get more taxes from people. Financial problems were a significant part of the fall of the Roman Empire.
20th century Bank Crisis
Panic of 1901, a U.S. economic recession that started a fight for financial control of the Northern Pacific Railway
Panic of 1907, a U.S. economic recession with bank failures
Shōwa Financial Crisis, a 1927 Japanese financial panic that resulted in mass bank failures across the Empire of Japan.
Great Depression, the worst systemic banking crisis of the 20th century
Secondary banking crisis of 1973–1975 in the UK
Japanese asset price bubble (1986–2003)
Savings and loan crisis of the 1980s and 1990s in the U.S.
1988–1992 Norwegian banking crisis
Finnish banking crisis of 1990s
Sweden financial crisis 1990–1994
Rhode Island banking crisis
Peruvian banking crisis of 1992
Venezuelan banking crisis of 1994
1997 Asian financial crisis
Enping financial crisis
1998 collapse of Long-Term Capital Management
1998 Russian financial crisis
1998–2002 Argentine great depression
1998–1999 Ecuador economic crisis
21st century Bank Crisis
2002 Uruguay banking crisis
2003 Myanmar banking crisis
Financial crisis of 2007–2008, including:
Subprime mortgage crisis in the U.S. starting in 2007
2008 United Kingdom bank rescue package
2009 United Kingdom bank rescue package
2008–2009 Belgian financial crisis
2008–2011 Icelandic financial crisis
Great Recession in Russia
2008–2009 Ukrainian financial crisis
2008–2014 Spanish financial crisis
Post-2008 Irish banking crisis
Venezuelan banking crisis of 2009–2010
Ghana banking crisis of 2017–2018
2023 United States banking crisis
2023 global banking crisis
Brian Wang is a Futurist Thought Leader and a popular Science blogger with 1 million readers per month. His blog Nextbigfuture.com is ranked #1 Science News Blog. It covers many disruptive technology and trends including Space, Robotics, Artificial Intelligence, Medicine, Anti-aging Biotechnology, and Nanotechnology.
Known for identifying cutting edge technologies, he is currently a Co-Founder of a startup and fundraiser for high potential early-stage companies. He is the Head of Research for Allocations for deep technology investments and an Angel Investor at Space Angels.
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