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Why I'm worried that we face another financial crisis in 2018
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2018.md

Why I'm worried that we face another financial crisis in 2018

A programmers take on the current financial situation

What's happening

We've seen the past few week a nosedive of the Bitcoin price. On 16 Dec 2017 the Bitcoin price raised an all time high of €16,727.68. In the past 50 days, it plummeted down to a €5,681.98 as of the time of writing, Monday the 5th of Feb 2018.

That means that the market cap of €280,120,891,322.48 of Sat the 16th of Dev 2017 is reduced to a market cap of €97,016,215,505.82, almost 35% of what it was 50 days ago! This morning it was announced that Lloyds Bank in the U.K. banned their eight million of the banking group’s customers of buying cryptocurrencies with their credit cards, because of worries about unpaid credit cards debts.[1] American banks like JPMorgan Chase, Bank of America and Citigroup are decided this already earlier.[2] Of course this announcement didn't any good to the prices of Bitcoin and other crypto currencies.

What seems as a nice way of protecting their customers, to me it seems more as the last resort to protect themselves, or even worse, as a way of damage control. Because this statement also affects the Bitcoin price to the negative, they must have realised that it wouldn't do any good for the outstanding debt that is invested in Bitcoin already, making it even harder to get this debt paid back.

So, why do I think that this is such a big problem?

There is a huge credit card debt. According to a nice article on CNBC[3], total credit card debt has reached more than $1 trillion in 2017. And since 2008 (yes, that's correct, just after the financial crisis)[4][5], it was predicted that the next economic crisis would be the credit card crisis. The credit card receivables are turned into asset-backed securities[6]. Sounds familiar? Isn't this what happened with mortgages before 2008?

When people started defaulting on these mortgages, this small bursting bubble was enough to create a bank run on the Repo Market.[7] Beacuse of missing regulations on the Repo Market, no-one foresaw that repo-run. And although our governments want us to be believe that regulations to prevent this are in place now, that is not the case in the Repo Market, cause these regulations in the Repo Market will raise the interest rates that our governments has to pay on their loans.[8]

But what does that have to do with Bitcoins?

According to a recent survey[8], 18.15% of the investors in Bitcoin paid with a Credit Card. Of these people who paid their Bitcoins with a credit card, only 77.87% paid off that credit card debt. That means that 22.13%, or more than 4% of people buying Bitcoins, hadn't paid off that debt yet. Of course, it's impossible to say anything about the amount of Bitcoins that is not paid off yet. Just for fun, a 4% of the Bitcoin (only) the Market Cap drop of the last 50 days is €7,324,187,032, a lot of money!

Of course it's impossible to know how much Bitcoin invested hasn't been paid off, let alone to say anything about the total amount of crypto currencies not paid off yet. And what the chain of events will be that's caused by these unpaid debts.

The fact that these banks ban the payment of crypto currencies with credit cards makes me worried. It sounds to me that the problem is already much bigger than we realise.

Please feel free to share your thoughts, improvements and corrections!

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