Wyoming Blockchain Leader: Repo Market Crashing Testifies to Bitcoin’s Stability


Last week, the US repo market experienced something akin to a bank run. The median repo repurchase rate of the US Treasuries skyrocketed from 2.00-2.25% to 2.46% on Monday, and a whopping 5.25% on Tuesday.

5.25% may not seem as powerful as the tone suggests, but within a trillion-dollar industry like repo, it gains significant traction. 5.25% of such a large amount of money is a staggering 5.25 billion USD. This is the median rate, however. Other rates climbed as high as 10%. 

The significant issues and reason why this all happened was a sudden influx in demand for capital reserves across a large group of corporations and banks. Businesses working with debts and assets have a lot of money “in the pipeline,” in other words funds they technically have but do not have at the moment. That’s fine, as long as they don’t need money in short notice.

Through a string of adverse circumstances, a lot of powerful corporations and banks had to get hold of a lot of liquid capital to use in a very short timespan. It provokes them to take repurchase agreements for more liquid assets to pay funds now, agreeing to pay interest on these assets when they pay it back, typically within 24 hours.

It’s a lot of loans to escape debt, as far as I’ve understood it, and the problem is compounded by a trend called rehypothecation. 

In easier words, it’s the event that leads to multiple parties believing they hold the same asset.

  • Party A buys a bond from the US treasure, showing an asset of maybe $100. 
  • Party B borrows this bond, showing a liability of $100.
  • Party C then gets the bond from Party B, which then shows a $100 asset on their account.

Now two parties own the $100 that comes from the US Treasury. Economically this is sound because we saw how the transactions went, but when you compile the two ledgers of Party A and C, they both have the same $100 in their respective accounts.

A flawed system like that leads to complicated events like what happened with the Repo market last week. The Federal Reserve was forced to put in $75 billion into the system to stabilize the repo rate of the US.

Bitcoin: The alternative

System faults like this do not exist in cryptocurrencies like bitcoin. Systemically, Bitcoin is considered antifragile, instead of the otherwise fragile repo market. The more stresses placed on Bitcoin only makes it stronger due to the inherent rise in processing power to facilitate bitcoin’s transactions.

Couple that with the fact that Bitcoin doesn’t have a debt it needs to juggle to stay afloat, and it’s easy to see why many consider Bitcoin a far safer venture that things like US Treasury bonds.

While Bitcoin’s price can jump up and down with surprising chaos, the fact that it debt-based makes it a far more secure investment. Bitcoin’s system inherently prevents things like bank runs.

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