One of the best things to have ever happened to crypto long term, is also proving to be one of the worst things to have ever happened to crypto in the short term. Hello, I’m Crypto Casey and in this video we are going to explore how mass adoption of cryptocurrencies, particularly bitcoin, by institutional investors is a double-edged sword that is helping make crypto more mainstream, while also suppressing its price. Bitcoin was created to be a retail asset, but has been corrupted in recent years by traditional mainstream financial markets.
Surprise, surprise. So let’s dive in and look at what may be a key factor in bitcoin’s price and how we can use this information to help us make better investment decisions in the crypto markets both short and long term. To help us wrap our heads around how certain aspects of traditional financial instruments applied to bitcoin are suppressing its price, first we need to understand the difference between equity-based assets and debt-based assets.
Title Screen: Equity-Based Assets Equity is just a fancy financial term that describes value or conveys ownership of value. The word equity is commonly used to describe ownership of shares in a company like stocks or the percentage of ownership someone might have in a company or real estate. For example, if your house is worth $100,000 and you paid $50,000 up front for the house and got a mortgage to cover the other $50,000, then you have 50% equity in the house.
That 50% equity conveys the amount of value of the asset that you own. Cool. So your house in this example is an equity-based asset because there is real underlying value of the real estate.
Same with stocks. Shares of stocks are equity-based assets because there is real underlying value determined by the free market. So bitcoin, as a new digital asset, was designed to be equity-based money and has been accepted by the free market as an equity-based asset, as we can see from it’s amazing upward price movements since inception over a decade ago.
Awesome. Now that we understand equity-based assets, let’s explore a major transition that occurred in the US economy to better understand how the US dollar went from an equity-based money to what it is today. Before the US went off the gold standard, the US was an equity-financed economy, meaning all of the debt borrowed by corporations outside of the financial realm was backed by real money in savings accounts.
Basically, the total dollar value of savings made by people and companies in the real economy equaled the total amount of debt corporations borrowed to grow their businesses. During this time, we were saving more of the money that we earned rather than using it to consume or buy products and services. So we consumed less than we produced.
During this time, debt in the US economy was backed by real US dollars, and US dollars were backed by gold. Hence the equity-based monetary system, where money was backed by underlying assets. After we abandoned the gold standard, the US turned into a debt-based economy and started using circulation credit, or fractional reserve banking.
If you’d like to learn more about show this thumbnail: https://youtu. be/muhdytoJa3M fractional reserve banking and the current structure of the traditional financial ecosystem, check out my video breaking it down for beginners’ by clicking on the link above. Title Screen: Debt-Based Assets In a debt-based economy that uses circulation credit, or fractional reserve banking, instead of debt being completely backed by 100% cash, the banks are allowed to keep only a fraction of the cash and lend out the rest in ad finitum.
For example, let’s say for every $100 you deposit into your account, per the fractional reserve banking system, the bank only has to keep $10 of the total deposit and is allowed to lend out the rest. This fraction of deposits banks are required to maintain are known as reserves. So the $10 fraction of the $100 you deposit into your bank account, is held as reserves.
And the fraction of deposits banks are required to maintain are known as reserve requirements. Hence the term, fractional reserve banking. And since the US abandoned the gold standard, all this cash, and fractions of cash banks are required to maintain, is now debt-based.
When the US dollar was backed by gold, cash was an equity-based asset. Now, the US dollar functions as a medium of exchange that is one, backed by the full faith of the United States, and two, the US government declares that the US dollar must be used to buy and sell goods and services in the United States. So the dollar is a loan or a note, in fact, you can see clearly written on cash “Federal Reserve Note,” which basically means the government promises the dollar has value because they have declared it has value by law.
Nice. So now that we know the difference between an equity-based asset and debt-based asset, let’s explore how Wall Street has started to treat bitcoin, an equity-based asset, as a debt-based one. And why this could be suppressing bitcoin’s price.
Title Screen: Real Demand vs Artificial Supply If you watch this channel frequently, you know that prices of assets like gold and bitcoin are determined by supply & demand. When demand is high, and the supply is low, we see the price of the asset increase. When demand is low, and the supply is high, we will see the price of the asset decrease.
But there’s something interesting going on here in the case of bitcoin. Wall Street is treating bitcoin the same way they treat gold, except in the scenario of gold, they have the market cornered and can largely control it, for now. However with bitcoin, it’s not the case at all.
Let’s talk about how Wall Street has been suppressing the price of gold for years by piling debt claims on it, and how they have potentially been suppressing the price of bitcoin using the same antics. The long and short of it with gold, is that there are more paper claims to gold than actual, physical gold. Sure, people can buy and store physical gold themselves, however most of the “gold” people own is just a paper saying they own “x” amount of gold and it’s stored in some vault in another country.
And considering the relationship of the price of assets and supply versus demand, imagine if the real demand for gold is being met and satisfied with an artificial supply of gold. Right, and that’s absolutely how the gold market works. The upperhand Wall Street has in the gold market is they pretty much own, operate, and control the clearinghouses.
Wall Street controls most of the gold in the world, and by Wall Street I mean all of the global banks. The central Banks and the LBMA, or London Bullion Market Association, control most of the underlying collateral of gold - not individuals. So as people want to redeem their actual gold, Wall Street and banks can pretty much trade with each other and fulfill any demand because they control the actual supply.
Let’s talk about the similarities between Wall Street’s relationship with gold and bitcoin. Just like with gold, currently there are more paper claims to bitcoin than actual bitcoin. How is it so?
Well, with the introduction of leverage, margin, & futures trading and ETFs in the cryptocurrency market, basically Wall Street applying old debt-based activity to an equity-based asset. And instead of Wall Street owning, operating, and controlling the supply of bitcoin, in the event of a run on bitcoin, there absolutely will not be enough bitcoin to fulfill demand, because most bitcoin is actually stored in wallets off of exchanges and out of circulation. So basically, for every actual bitcoin that exists on the blockchain, 10 people, or 50 people, or hundreds of people could have a “claim” to that same bitcoin through an ETF, lending, borrowing, leveraging, or simply by leaving their bitcoin on the exchange.
Literally, hundreds of people could be watching the same bitcoin on their Coinbase, Gemini, Binance, or Kraken app thinking and believing that it’s “theirs,” when in reality with one, the development of crypto ETFs, two, the allowance of margin and leverage trading of cryptos, and three, lack of transparency and oversight of how many times crypto can be lent, and re-lent to several people, throughout several exchanges, there is an artificially higher supply of bitcoin in circulation. So let’s think about it, if there is real demand for bitcoin, like all of the hundreds of people who bought and are “holding” or looking at the same exact bitcoin on their account, if all that real demand is being met and satisfied with an artificially inflated supply of available bitcoin, what is the true price of bitcoin? Well, it should be much much higher.
If you create an artificial supply of something, which Wall Street has done with gold and is now doing with bitcoin, all else equal, the price of the asset is suppressed. And instead of Wall Street owning, operating, and controlling the supply of bitcoin, in the event of a run on bitcoin, there absolutely will not be enough actual bitcoin to fulfill demand, because most bitcoin is actually stored in wallets off of exchanges and out of circulation. So let’s imagine a scenario where Wall Street has largely shorted bitcoin, meaning they expect the price to go down, but then, the price goes up and Wall Street is forced to close their positions regardless of the price of bitcoin - that could be a problem.
If you had a big intermediary like Coinbase, Binance, or Bitfinex with lots of open leveraged short positions experiencing a classic run on the bank for bitcoin and there’s not enough of the underlying collateral to deliver, the price of bitcoin could spike. Spike by a lot, similar to the Game Stop short squeeze situation, but on a global scale. These big institutions would be desperately trying to find collateral that they ultimately wouldn’t be able to get because it simply doesn’t exist.
And if or when a short squeeze occurs, bitcoin hodlers would have the last laugh. This is why it’s so important to make sure you are transferring your crypto off of exchanges to hold safely in a cold storage hardware wallet. Please use the links in the description area of this video to access the correct and official sites of my recommended hardware wallets.
BC Vault is my personal favorite, another option is the Ledger nano backup pack. So Scroll down to check them out. If you’d like to learn more about wallets before transferring your crypto from exchanges, check out my video guide for beginner’s to help wrap your head around things before making any moves by clicking on the link above.
Awesome. Thank you so much for taking the time to watch this video. If you enjoyed it, please make sure to like this video and subscribe to my channel for more crypto content.
So do you think Wall Street is suppressing bitcoin’s price? Or are there other factors at play? Are you going to transfer your crypto to your own wallet?
Let me know in the comments below. Be safe out there.
