Dan Held is the founder of crypto portfolio service Picks & Shovels. He previously founded data service ZeroBlock, which sold to Blockchain, and served as VP of product at ChangeTip.
This exclusive opinion piece is part of CoinDesk’s “Bitcoin at 10: The Satoshi White Paper” series.
“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.” — Satoshi Nakamoto
In my last article, “Species,” I covered why Satoshi’s design of Bitcoin’s genetic code made it the best species of money ever created.
Satoshi had begun creating Bitcoin’s genetic code in 2007, but had waited for the right moment to plan the seed, the right moment in which the world would understand and embrace what he had created. In this article, I will dive into the moment in which Satoshi precisely chose to plant the Bitcoin seed.
(To enjoy this article in its fullest, I recommend playing this song then continue reading. If you like this music, please follow my playlist on Spotify.)
From the founding of the Bank of England, central banks have been used as a means for states to fund their policies without risking the popular ire caused by direct taxation.
When the capital provided by central banks is misallocated by either the state or in a market distorted by artificially low interest rates, an inevitable collapse occurs.
The central bank is the root of these periodic market dislocations.
“I believe the root cause of every financial crisis, the root cause, is flawed government policies” — Henry Paulson (US Treasury Secretary during the 2008 financial crisis and former Goldman Sachs CEO)
With the recent market dislocation, investors were bailed out. Unfortunately, you cannot subsidize irresponsibility and expect people to become more responsible.
Prior to the 20th century, ordinary people could always flee to gold to save themselves from the effects of the failed, inflationist, policies of the central bank. This ended across much of the world in the 20th century as gold was outlawed. — Vijay Boyapati
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.” — Alan Greenspan (Former Chairman of the Federal Reserve)
Satoshi Nakamoto, after years and years of research, starts coding up Bitcoin.
2008 Financial Crisis
“The problem had grown so big that the end was bound to be cataclysmic and have big social and political consequences” — Michael Lewis (Big Short)
Fed tries to stop the housing bust
The Federal Market Open Committee began lowering the fed funds rate (to 3.0%). There were 57 percent more foreclosures than 12 months earlier
Bush signs tax rebate as home sales continue to plummet
February 13: President Bush signed a tax rebate bill to help the struggling housing market. The bill increased limits for FHA loans and allowed Freddie Mac to repurchase jumbo loans.
Fed begins bailouts
March 14: The Federal Reserve held its first emergency weekend meeting in 30 years.
March 17: The Federal Reserve announced it would guarantee Bear Stearns’ bad loans.
March 18: The Federal Open Market Committee lowered the fed funds rate by 0.75 percent to 2.25 percent. It had halved the interest rate in six months. That same day, federal regulators agreed to let Fannie Mae and Freddie Mac take on another $200 billion in subprime mortgage debt.
April — June
The Fed buys more toxic bank debt
June 2: The Fed auctions totaled $1.2 trillion. In June, the Federal Reserve lent $225 billion through its Term Auction Facility.
IndyMac bank fails
July 11: The Office of Thrift Supervision closed IndyMac Bank. Los Angeles police warned angry IndyMac depositors to remain calm while they waited in line to withdraw funds from the failed bank.
July 23: Secretary Paulson made the Sunday talk show rounds. He explained the need for a bailout of Fannie Mae and Freddie Mac. The two agencies themselves held or guaranteed more than half of the $12 trillion of the nation’s mortgages.
(for the next few paragraphs, I HIGHLY recommend listening to this soundtrack)
September 7: Treasury nationalizes Fannie and Freddie and will run the two until they are strong enough to return to independent management. The Fannie and Freddie bailout initially cost taxpayers $187 billion.
September 15: Lehman Brothers files for chapter 11 bankruptcy, the largest bankruptcy filing in U.S. history with over $600B in assets. The bankruptcy triggered a one-day drop in the Dow Jones Industrial Average of 4.5%, the largest decline since the September 11, 2001 attacks. Later that…