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China Banking Run – A Positive Effect On Bitcoin

Since its introduction in 2008, Bitcoin has been scoffed at nothing more than an experiment. Plus, it has been seen as a valueless version of magical internet money. A lot of people find it absurd and downright ridiculous for Bitcoin to provide its users with all the benefits and incentives it promised to deliver.

However, the report of the Chinese bank was subject to bank run bolstered and increase the cryptocurrency’s value proposition.

The Bank Run Increased Bitcoin’s Demand

Many people haven’t heard of the term ‘Bank run’ before. The term is commonly used in relation to the Great Depression that occurred in the 1920s as well as the 1930s. This Great Depression necessitated family to hurry back to their previously saved financial institutions like banks to withdraw their savings.

The threat posed by bank run remains globally. This threat directly affects the fractional reserve banking system. Consequently, it translated into banks having less number of physical banknotes on hand compared to the amount of money that their clients deposits.

The Wall Street Journal on October 31 disclosed that Henan Yichuan Rural Commercial Bank, a rural bank that services customers in the area around Luoyang, a Chinese city, is in the center of the bank run. Customers and depositors were reported to have rushed into the bank for a third consecutive time to withdraw all of their savings in fear that the banking institution will collapse.

The depositors that prompted that action feared that the commercial bank was on the verge of declaring bankruptcy. This fear was not abated by the incessant waving of cash in the air by the bank’s managers to reassure its depositors and clients.

They gave them assurances that their savings and deposits were safe and backed by the Chinese state. However, the depositors didn’t heed this plea and went ahead with their actions. The Henan Yichuan Rural Commercial Bank case was believed to be the fourth of cases involving the failure of Chinese banks of notable size in the past few months.

How Bitcoin Benefited

The idea on which Bitcoin was developed included the absence of a third-party involvement, fast and secure method of transactions, etc. Bitcoin and other cryptocurrencies incorporated the idea of private keys and distributed ledgers. These innovations allowed users to became ‘their own banks.’

Since they hold the private keys, they automatically hold the cryptocurrency. The private keys innovation guaranteed that as long as all the users kept their own Bitcoin in their own digital wallets, there will not be any incidence of a bank run. There wouldn’t be any need for government intervention to rescue Bitcoin bank

In Conclusion

This bank-run exposed so many Chinese to the benefits that Bitcoin with the technologies it has incorporated in its operations provides. Many more people have begun trading in bitcoin because of the safety and independence it guarantees.

The Chinese bank run, therefore, gave the Chinese the chance to seek an effective alternative. That alternative was Bitcoin.

Image by PIRO4D from Pixabay

John McEnroe

John McEnroe

“Those who believe in Bitcoin also believe in cleverness." – Arif Naseem

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“Those who believe in Bitcoin also believe in cleverness." – Arif Naseem