The Allure of Self-Custody of Assets in the Wake of Banking Crisis

The Allure of Self-Custody of Assets in the Wake of Banking Crisis

Cryptocurrency & Blockchain

The banking crisis of spring 2023, which brought Silicon Valley Bank to its knees and threatened to spread contagion elsewhere, may or may not be resolved. But it once again brought into sharp focus the argument over who should be custodians of assets. The near collapse of SVB was contrasted with a sharp rise in the price of Bitcoin and other cryptoassets. Now, we should make clear that BTC didn’t soar only because of the banking crisis; there are related reasons, including the fact that problems in the banking sector might cause the Federal Reserve to pause rates and start cutting sooner rather than later. 

However, the problems with banks, both in the United States and abroad, particularly in Switzerland, allowed the narrative of self-custody to once again come to the fore. It is part of the web3 – that being the broad term for the cryptocurrency and blockchain movement – that decentralization is the key to our economic and social future. Decentralization refers to the elimination of the central authority. In the social sense, that means an internet outside of, for example, Google’s control, and social media platforms not controlled by centralized bodies like Facebook. Furthermore, in economic terms, it means self-custody and peer-to-peer transactions. In simpler terms, it means being your own bank. 

BTC can never be debased by supply

Now, as mentioned, none of it means to say that the crypto markets rose recently based on this narrative – far from it. But the crisis in banking, and the rush for governments to once again print billions of dollars in bailout funds, has once again made a compelling case for, as we put it, being your own bank. Remember, regardless of Bitcoin’s volatility, 1 BTC will always equal 1 BTC. The fact that there becomes a limited amount of the tokens (21 million) means BTC can never become debased by printing in the same manner as fiat currency. 

The question, though, is whether one can exist outside the existing financial structures and embrace self-custody. The answer is arguably yes. Today, you can find retailers in every shape or form willing to accept Bitcoin and other major cryptos. For instance, Bitcoin online casinos have become hugely popular, with players connecting their crypto wallets to a platform, depositing and withdrawing without the need for a bank. True, you are not going to be able to pay with crypto in your typical coffee shop or on major retail platforms like Amazon, but many believe that will come sooner rather than later. 

2008 paved the way for BTC

For clarity, we should also say that self-custody is a rallying cry for those already operating inside the cryptocurrency sector. The crash of the FTX cryptocurrency exchange back in late 2022 was one such example. Billions of dollars of customer deposits became lost in the collapse, as was also the case for other major crypto exchanges falling. The point, as such, is that self-custody does not mean owning crypto, but securing that cryptocurrency in a wallet that only you control. This is the purist’s form of web3 economics, giving rise to the mantra, “not your keys, not your crypto”. 

It’s probably worth saying that even should we have a repeat of the 2008 Financial Crisis, we will probably not see a massive rush towards self-custody. The world is arguably not ready for that yet. And let’s be honest about it: Crypto has a bit of a PR problem, exemplified by the FTX debacle above. There’s also the regulatory problem. However, it’s also worth remembering that Bitcoin was created in the ashes of that crisis, as the pseudonymous Satoshi Nakamoto saw the fall of banks, the rush for governments to print money (quantitative easing), and so on. In March, as governments rushed to bail our SVB and Credit Suisse, the same arguments arose again. Who should control your money? Will it ever be safe? The argument that you should be in control just got a little stronger. 

The Allure of Self-Custody of Assets in the Wake of Banking Crisis