The centralised financial system is often described as regulated, safe and trustworthy. The actual record is different. Currencies have been systematically debased. Banks have failed on a recurring cycle. Bailouts have transferred losses from shareholders to taxpayers. This article examines what the record actually shows, rather than what we are told to believe.
| Point | What the record shows |
|---|---|
| Fiat money supply expands without limit | US M2 money supply grew from $287 billion in 1959 to over $21.5 trillion by 2025: a 75-fold increase. |
| Major banks have failed repeatedly | Bear Stearns, Lehman Brothers, Washington Mutual (2008) and Silicon Valley Bank (2023) are recent examples. |
| Bailouts socialise losses | In every major crisis, taxpayers absorb the cost while management keeps bonuses. The incentive structure rewards risk. |
| Bitcoin is not the same as crypto exchanges | FTX failed as a centralised intermediary. Bitcoin itself operated without interruption throughout that collapse. |
| Self-custody removes intermediary risk | Holding your own Bitcoin means no bank, exchange or custodian can lose it on your behalf. |
A few weeks ago I was in a conversation with a professional I respect, a senior executive who runs a significant balance sheet, and he said something I have heard dozens of times: “But James, the banking system is regulated. It is safe. That is what I trust.”
I understand why people believe this. We are told it constantly. The regulatory infrastructure is there. The deposit insurance exists. The central banks are watching. The system is designed to be trustworthy.
I think we should look at what the record actually shows, rather than what we are told to believe.
The foundation: fiat currency and monetary debasement
The foundation of the centralised financial system is fiat currency: money whose value is decreed by government rather than backed by anything physical or mathematically limited. Central banks hold the authority to expand the money supply at will. This is presented as a stabilising feature. In practice, it is a mechanism for transferring wealth from savers to debtors and from citizens to governments.
The data is not ambiguous. In the United States, the M2 money supply has grown from $287 billion in 1959 to over $21.5 trillion by 2025. That is a 75-fold increase. Over the last decade alone, M2 grew at an annualised rate of 12.8%. The purchasing power of cash savings has been systematically eroded, year after year, with no announcement, no vote and no opt-out for ordinary citizens.
Lyn Alden, in Broken Money, describes this as “the quiet default.” Rather than explicitly defaulting on obligations, governments inflate them away. The nominal number in your account stays the same. The real value declines. Most people do not notice until they try to buy a house, pay for their children’s education, or retire on savings that should have been adequate.
This is not unique to the United States. Venezuela experienced a hyperinflation rate of 1,698,488% in 2018. In Argentina, the annual inflation rate reached 211%, and companies are now actively allocating treasury holdings to Bitcoin to counteract the peso’s debasement. These are not edge cases. They are the logical endpoint of a monetary system with no hard constraints on supply.
The banking system: fractional reserve and systemic fragility
Beyond currency debasement, the banking sector operates on fractional reserve banking: holding only a small fraction of customer deposits in reserve while lending out the rest. This model creates credit and growth. It also creates fragility on a systemic scale.
The Great Financial Crisis of 2007 to 2008 is the clearest modern case study. Excessive risk-taking, the proliferation of toxic mortgage-backed securities and the systematic mispricing of risk brought the global economy to its knees. In the United States, the government and Federal Reserve were forced to commit trillions of dollars to bail out institutions that had socialised their losses onto taxpayers.
Bear Stearns collapsed over a weekend in March 2008. Lehman Brothers, a 158-year-old institution, filed for bankruptcy in September of that year. Washington Mutual, the largest savings and loan association in US history, was seized by regulators. Fannie Mae and Freddie Mac, which collectively underwrote roughly half of all US mortgages, were placed into government conservatorship.
These were not small, poorly run institutions. These were the pillars of the centralised financial system.
In March 2023, Silicon Valley Bank collapsed: the second-largest bank failure in US history, with roughly $200 billion in assets. It took 48 hours to unravel. The contagion spread to Signature Bank and First Republic within days. The Federal Reserve had to create an emergency lending facility to prevent further runs. The regulators who were supposed to be watching missed it entirely.
The bailout pattern
What is most instructive is not the failures themselves. It is what happens after.
In every major crisis, the pattern is the same: the institutions that took the most risk receive the most government support. Shareholders sometimes lose. Management rarely faces meaningful consequences. The employees who caused the problem receive severance. Ordinary depositors and taxpayers absorb the cost of the rescue.
This is not a design flaw. It is a design feature. It is how a system built on fractional reserve banking and unlimited money printing is supposed to work when it fails. The incentive structure systematically rewards risk-taking and socialises losses. When the cost of failure is borne by others and the reward of risk-taking is yours, you take more risk than is prudent.
Bitcoin is not the same as centralised crypto exchanges
FTX, presented as one of the most reputable centralised exchange platforms in the digital asset industry, collapsed in November 2022 with approximately $8 billion in customer losses due to fraud and the commingling of user funds. Celsius, BlockFi and Voyager also collapsed due to mismanagement and excessive risk and illiquid positions.
These failures have been used to argue that Bitcoin is just as risky as the traditional system. This argument misunderstands something fundamental. FTX was not Bitcoin. FTX was a centralised intermediary that promised to hold Bitcoin on your behalf. It failed for exactly the same reason banks fail: it was a centralised institution operating with insufficient reserves, inadequate oversight and misaligned incentives.
Bitcoin itself did not fail. The protocol issued its blocks every 10 minutes throughout those collapses. The network verified transactions. No holder who held their own Bitcoin, rather than trusting it to an intermediary, lost a single satoshi.
The lesson from FTX is not “Bitcoin is risky.” The lesson is “centralised intermediaries are risky.” That is precisely the point Satoshi Nakamoto embedded in the Genesis Block in January 2009. It is why self-custody matters and why SimplB moves every client’s Bitcoin off the exchange as the balance grows.
The South African dimension
South Africans hold savings in institutions exposed to South African sovereign risk. Our banking system, whatever its individual merits, is subject to the monetary policy decisions of the Reserve Bank, the fiscal decisions of the Treasury and the political decisions of whichever government holds power.
We have watched the rand lose the majority of its value against hard currencies over decades. We operate with exchange controls that restrict our ability to freely move capital to safety.
The structural risks inherent in centralised finance are not theoretical. They are real, measurable and present in every jurisdiction, including South Africa. The degree to which they materialise varies. The existence of those risks does not.
What this argument is and is not saying
This is not an argument to put everything you own into Bitcoin and close your bank accounts. That is not a sensible position.
It is an argument that the case for centralised finance as the default safe option rests on a record that does not support that confidence. The money has been debased systematically. Banks have failed catastrophically on a recurring cycle. Bailouts have socialised losses onto the people least able to absorb them. Regulators have repeatedly missed the failures they were supposed to prevent.
The honest response to that record is to ask whether a portion of your savings might be better held in a form of money that cannot be debased by any central authority, does not require trust in any intermediary and has operated without failure for over fifteen consecutive years.
Not your keys, not your coins. But also: not their keys, not their risk over your savings. That trade-off is worth understanding clearly.
Frequently asked questions
Is the South African banking system at risk of failure?
South African banks are regulated by the Prudential Authority under the SARB and maintain capital adequacy requirements. The immediate risk of systemic failure is not high. The structural risks, including exposure to sovereign risk, rand debasement and exchange control constraints on capital mobility, are real and present regardless of any immediate solvency concern.
What is fractional reserve banking and why does it matter?
Fractional reserve banking means banks hold only a fraction of customer deposits in reserve and lend out the rest. This creates credit and economic activity, but it also means the banking system is inherently fragile: if a significant proportion of depositors try to withdraw at the same time, the bank cannot meet the demand. This is why bank runs happen and why central bank backstops exist.
Why did FTX collapse if Bitcoin itself is secure?
FTX was a centralised company that held customer Bitcoin on its own balance sheet and misused those funds. When the fraud was exposed, the company could not return customer assets. Bitcoin’s protocol was not involved in this failure at all. The distinction between Bitcoin as a protocol and centralised exchanges that hold Bitcoin on your behalf is fundamental to understanding custody risk.
How does self-custody protect against exchange risk?
When you hold Bitcoin in self-custody, you control the private keys directly. No exchange, custodian or third party can freeze, lose or misappropriate your funds. The trade-off is that you are responsible for key security. SimplB helps clients set up hardware wallets and managed multisig vaults that balance security with practical recovery options.
What proportion of savings should be held in Bitcoin versus traditional assets?
This depends entirely on individual circumstances, risk tolerance, time horizon and existing asset mix. Bitcoin should be viewed as a long-term savings asset rather than a short-term trade. Most SimplB clients start with a small allocation via a Rand cost averaging plan and increase their position as their understanding and conviction grow. There is no single right answer.
Sources
- Lyn Alden:Broken Money: analysis of fiat monetary systems and the case for sound money
- US Federal Reserve H.6 Money Stock Measures: M2 money supply data
- Financial Sector Conduct Authority (FSCA): South African CASP regulatory framework
- Bitcoin: A Peer-to-Peer Electronic Cash System: Satoshi Nakamoto’s original whitepaper
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Talk to a Bitcoin SpecialistWritten by James Caw, Founder of SimplB. James has helped South Africans understand, buy and secure Bitcoin since 2015. SimplB operates as a Juristic Representative of CAEP Asset Managers, FSP 33933. Last updated: May 2026.
This article is for general educational purposes only and does not constitute financial, legal, tax or exchange control advice. The information reflects the regulatory position as at the date of publication. Your individual circumstances may differ and you should seek qualified professional advice before making any decisions.
