This post was most recently updated on December 1st, 2019
People are realizing more every day that all those derivative markets are fraud. The crypto market is waiting for BAKKT to launch physical Bitcoin futures and many think that this will start a new bull run in the crypto market. On the other side, we have a patent application from Mastercard for a fractional reserve Bitcoin banking which many think will increase the Bitcoin supply from 21 million to 210 million.
Some days ago we wrote an article about Mastercard applying for a patent for Fractional Reserve Cryptocurrency Bank — Application 20180308092
But what is Fractional Reserve Banking?
What fractional reserve means in simple words is increasing the paper supply of something that has a limited supply like gold and bitcoin for example. Imagine a device that is able to create unlimited bitcoins!
This is how the fractional reserve multiplies money:
The Multiplier Effect
Let take a simple example:
Bob deposits $1000 in his bank account. The banks hold a $100 dollar reserve and issue a $900 dollar loan. Alice gets this $900 loan and goes to buy a product for $900 from Steve. Steve deposits $900 in his bank account. The banks hold a $90 dollar reserve and issue an $810 dollar loan. And the cycle can repeat over and over again creating unlimited supply and inflation decreasing the value of the money.
Bitcoin and many cryptocurrencies might have limited supply but the “Fathers of our Financial System” invented ways to create unlimited supply even from things like gold and silver and of course bitcoin. Meanwhile, Bitcoin came to solve the problem of the unlimited supply that the traditional financial system creates causing the Great Depression in the 1930s and The Great Recession in 2008. The Fathers of our Financial System” are trying to solve the Bitcoin scarcity creating a fractional reserve banking for Bitcoin.
Derivatives can create an unlimited supply
I found this interesting discussion on Twitter between @officialmcafee and @Super_Crypto on November 30, 2017, before the launch of CME and CBOE on December 2017 when bitcoin price hit the top record $20.000.
Mathematically, more than 21 million Bitcoins cannot possibly be created.
— John McAfee (@officialmcafee) November 30, 2017
They first launched Futures in the past year which brought down the cryptocurrency market by 75% (in December 2017 the total market capitalization was 800 billion and at the time of writing is 200 billion) and now with the volume increase, comes the idea if the fractional reserve.
Practically with this patent, Mastercard will be able to create 10 times more Bitcoin supply than the Bitcoins they will hold in their reserve which is 10%.
However nothing in the world is perfect, will come a day when this Ponzi scheme will end. Until that time comes FR and banks will continue to rule our financial system.
Sometimes the road just ends…..
Sometimes the road just ends… and you either hit a wall or fall right off a cliff. [PT]
What do you think will be the effect in the crypto market in the case this patent gets approved?
Feel free to post your opinion in the comments below.
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