Wall Street Embraces Bitcoin, But is That a Good Thing?
When an entire financial system accepts Bitcoin, few people pause to think about the implications amid the bullish celebration. Designed as a countervailing measure against bailouts and Wall Street’s tight control, what does it mean when Bitcoin is in the hands of those same people?
The Era of Consolidated Power
The world’s largest asset manager—BlackRock—which holds nearly $9 trillion worth of assets, has formed a tight partnership with the Federal Reserve. Before the pandemic turmoil of 2020, the chasm between Main Street and Wall Street was already at its breaking point, eventually birthing the Occupy Wall Street movement in the wake of 2007-2008 bank bailouts.
However, the revolt-inducing bank bailouts paled in comparison to the pandemic-induced lockdowns. Previously reserved for the prison system, the extreme lockdowns turned into a massive boon for Wall Street, raising the wealth of the billionaire class by $3.9 trillion. This figure is eerily similar to the wealth global workers lost at the same time—$3.7 trillion—according to International Labour Organization (ILO).
In this historic wealth exchange, from the low and middle class to the billionaire class, two important trends occurred, pushed at the forefront of everyone’s consciousness:
- Consolidation of corporate power across the board: media and entertainment, social communication platforms, payment platforms, distribution platforms. Although many anti-trust lawsuits are incoming, they remain unlikely to change this state of affairs.
- Deplatforming – financial and social ostracization for ideologically sectarian reasons. It has become so extreme that the entirety of the French intellectual and political elites have come to view American techno-cultural exports as a threat to France’s national security.
In essence, we are witnessing a fusion of particular tension-fueling ideology with economic actors powerful enough to push it through. Eventually, it culminated in the deplatforming of the sitting POTUS. Curiously, this socially destabilizing trend started to gain traction right after the Occupy Wall Street movement dissolved.
Bitcoin Completes its Mainstream Integration
In the shadow of this ongoing societal transformation, alternatives emerged in the form of Bitcoin and Ethereum. Each blockchain represents a refuge from the hyper-centralization and inevitable abuse of power in the form of anti-competitive deplatforming. Steadily gaining in popularity, it is nearing mainstream integration.
PayPal’s acceptance of Bitcoin was a milestone, now overshadowed by Visa, MasterCard, Square, BNY Mellon and many others integrating it into their payment ecosystems. As Wall Street fully embraces Bitcoin, it can no longer be viewed as a disruptor of the status quo.
The question is, what does it mean for Bitcoin to be nestled within Wall Street? If we take a look at Wall Street’s history, we can conclude that it makes its gains mostly by being an interceptor of the money flow:
- Wall Street triggered the 2008 Financial Crisis by creating a new asset class – non-conforming residential mortgage-backed securities – amid lax mortgage rules. Accounting for $10 trillion, this new pool served Wall Street as another source of money flow to skim off.
- Likewise, Robinhood’s fall from grace in the GameStop’s short squeeze had been illuminating. Wall Street hedge funds skim from sell order flows, leveraging their market-maker status to exert pressure on brokerages to halt trades when retail investors use their strategy against them.
In other words, Wall Street is all about placing itself in the middle of money flows to tap into them, as an unavoidable but unnecessary infrastructure. Bitcoin had been developed to counter that. It was specifically designed to eliminate such gatekeepers and mediators in an entirely transparent manner.
When Wall Street Holds Most of Bitcoin
Even JPMorgan and Morgan Stanley, one of the biggest bailed banks that belittled Bitcoin, recently announced they will have to get into the crypto market. What happens when Wall Street power brokers take a hold of most of Bitcoin, a trend already beginning last year?
At the same time as they push Bitcoin’s price higher, they become the dominating force in the crypto ecosystem. For retail investors, Bitcoin represents a system that is inherently resistant to deplatforming. For institutional investors, Bitcoin represents a smoother way of making money, which means that:
- Only a tiny minority of people will ever own more than 1 BTC.
- Retail Bitcoin holders will provide liquidity for Wall Street, selling and buying BTC as Wall Street hedge fund managers see fit.
- Wall Street may exert its overwhelming influence on the government to benefit them against retail Bitcoin holders. This almost happened with Treasury Secretary Mnuchin, but his successor and Yale colleague, Janet Yellen, is no fan of Bitcoin either.
- As Wall Street created a new asset class that upended the economy in 2007 – 2008, what is stopping it from creating a new asset class again, mixing cryptocurrency with something else? The unfolding would be the same: bailouts for Wall Street, risk absorption for the little guy.
These are just some of the glaring dangers on the road to decentralized finance within a centralized system rife with abuse. Unfortunately, we already know that when it comes to lobbyists vs. the people, the latter have zero political representation. Although this may be disheartening, the existence of Bitcoin/DeFi itself speaks to the problem-solving power of the little guy.
Do you think Decentralized Finance can eventually absorb the manipulative influence of established power brokers? Let us know in the comments below.