The HiFi Bitcoin Letters
The HiFi Bitcoin Letters
Letter #198: Not Your Keys, Not Your Coins - Don't Bank On Getting Your Money Back

Letter #198: Not Your Keys, Not Your Coins - Don't Bank On Getting Your Money Back

Read now to learn how your money isn't yours unless you keep it in self-custodied Bitcoin.

Dear Readers,

When people hear the words “Not Your Keys, Not Your Coins”, they naturally think of Bitcoin, as well as perhaps “Crypto” since that space has adopted the saying too given that many digital assets use public key cryptography like Bitcoin does. However, it seems unlikely that people think of traditional banks when they hear it. I intend to change that with today’s discussion.

The sentiment behind “Not Your Keys, Not Your Coins” reflects the fact that, if you leave your Bitcoin in someone else’s control, then you effectively hand them ownership over the private keys protecting your Bitcoin, and you can never be 100% certain that you’ll be able to get them back. That reality became painfully obvious to many people during 2022, as failure after failure among crypto companies led to massive user losses.

However, the idea that leaving your money in someone else’s hands carries risks that don’t exist when you hold it yourself applies to far more than just Bitcoin, as tens of thousands of customers in the traditional banking system found out just last week…

Want Your Deposits Back? Don’t Bank On It

I thought crypto companies failed quickly, what with several major companies failing over the course of 2022. However, traditional finance has seemingly put that to shame, as three major banks failed in just a handful of days last week:

  • Silvergate Bank, a “leading bank for business & crypto” was the first to go down, announcing on Wednesday that it would wind down its operations entirely.

  • Silicon Valley Bank, which claimed to be the bank of choice for over half of startups in the U.S., failed outright on Friday, quickly becoming the second-largest bank failure in U.S. history.

  • Regulators announced Sunday evening that they had forcibly closed Signature Bank, one of the largest banks in the state of New York, apparently believing that it represented a potential systemic risk.

Depositors, shareholders, and bondholders are probably in various stages of disbelief, and many of them will likely not receive the full value of what they had put into the banks. They trusted those banks and the regulators overseeing them to protect their money and their interests. They’ve now learned the hard way that trust only holds its worth until it’s broken.

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Regulation Is All About Control

As an outsider who has (so far) not been impacted by this situation, I’ve recognized a disturbing fact that many people may not think about: regulators are stepping in to seize banks’ assets, including customer deposits, and shut the banks down.

Some people may be relieved by that. After all, regulators have largely convinced people around the globe that they’re only interested in protecting economies, businesses, and everyday people. However, the fact remains that the government was able to step in and seize private assets from massive corporations with little pushback and little visible effort.

If this doesn’t alarm you, it should. It’s bad enough that banks can lose your money through rehypothecation, malinvestments, theft, or any number of other mismanagements. But it’s now painfully obvious that governments can step in from one second to the next and take your assets out of the bank and into their coffers. Today they’re doing so seemingly to protect your money from corporate mismanagement. Tomorrow they could be doing it because you said something they didn’t like or because their bills have come due.

Not Your Keys, Not Your Money

Bitcoin is the only money in the world that is truly decentralized and wholly resistant to confiscation, censorship, and debasement. If you protect your private key well, I believe there’s nowhere safer to keep your money. So why would I keep my money anywhere else?

Read the next article in this series:

The HiFi Bitcoin Letters
Letter #201: Not Your Keys, Not Your Coins - Bitcoin "Stablecoins"
Listen now (4 min) | Dear Reader, As many of you know, I am a huge supporter of self-custody. I’ve written an entire series of articles dedicated to helping you understand self-custody basics, and I thoroughly believe tha…
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This is not financial or business advice. This newsletter and related content are for informational purposes only. Cryptocurrencies and digital assets can be risky. Always do your own research before making any sort of investment.