Mortgage-backed securities contributed greatly to the 2008 financial crisis. According to some observers, Bitcoin created in response to this crisis began to resemble MBS as the majority of the Bitcoin market is represented by “paper” Bitcoin or sophisticated Bitcoin derivatives. How accurate is that? Do I need to prepare for another basic shakeout?
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The crisis of 2008
The 2008 financial crisis was a product of several simultaneous misfortunes and disapprovals. One factor that made this possible was the development of highly complex trading instruments. Securitization is the term selling contractual obligation-based money pools (mortgages, car loans, etc.) related to these obligations to third parties in the form of securities.
Mortgage-backed securities saw rapid traction, but they turned out to be not properly secured. Mortgages were given to people with little or no evidence of financial dismantling. MBS, related to subprime mortgages, became the dynamite of the global economy during the housing bubble boom of 2007-2009. Banks, hedge funds and mortgage lenders have seen bankruptcies, liquidation, banking runs and more.
The results of the 2008 financial crisis included high unemployment, crashed markets, inflationary spikes, reduced household wealth and a number of bailouts. The government saved the banking system, but most of the people responsible for the crisis were not punished. Unknown innovators came up with an alternative e-cash system that is not managed by banks or governments known as Bitcoin.
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From Bitcoin White Paper to Paper Bitcoin
Bitcoin is technically independent of all entities due to its decentralized network, but governments and businesses have the power to concentrate millions of dollars on Bitcoin, so they have found ways to ultimately impact Bitcoin.
As public awareness of Bitcoin grew, its price rose. Investments from institutions and governments were viewed mostly positively as they increased the spot price of Bitcoin and brought it closer to mass adoption. Soon, Bitcoin began to adopt traditional financial products and allow profits from Bitcoin you don't have. Bitcoin futures became available in 2017. By then, Bitcoin margin trading was already in place. 2024 saw approval for the Bitcoin ETF.
The adoption and adoption of Bitcoin derivatives created patterns that reminded MBS's movement before the 2008 financial crisis.
Recently, certain pension funds in the US, UK and Australia have invested in Bitcoin through ETFs, just as they had invested in MBS 17 years ago. Just like 17 years ago, bitcoin derivatives are so sophisticated that risk management is limited. The same was true for MBS when no one knew who owns who owns what, who exactly who owns, because the securities were bundled into other instruments and fusions. Today, they fear fueling institutional investors in a similar way in 2008.
Academic researchers Rahool Kapoor and Natalya Vinokurova released their work in March this year. They write that comparing Bitcoin with gold is just as dangerous as comparing MBS with bonds. Bitcoin is similar to gold in many ways, whether it's rarity or high returns, but the author says that Bitcoin could fail in the way that MBS did after ungrounded trust on this asset mixed with FOMO.
These researchers don't try to explain why many believe that many people are like gold, often, many. Nevertheless, their recent criticism of the process surrounding Bitcoin is similar to some (rare) opinions across Crypto Twitter, indicating that there may be too many paper Bitcoin in the market.
Paper Bitcoin means that when two people use an exchange and one person lends Bitcoin to another, no actual exchange between them occurs. Instead, the exchange will show both people as having these bitcoins. It distorts data and involves people trading non-deductible assets.
It's easy.
For example, the $ibit short seller creates paper Bitcoin.
This occurs through operational short sales. Market makers borrow ETF shares to shorten the market, and the fund itself owns actual BTC. result? Bitcoin claims more than actual coins. https://t.co/g4pxlnfvrv
– Josh Mann (@joshmandell6) June 8, 2025
Some believe that paper Bitcoin trading is the reason why BTC is still far from a million or half despite the millions of purchases by the Treasury of Bitcoin. However, Bitcoin's Treasury is worth using OTC desks to avoid any immediate impact on the market.
In my paper, if the financial system is healed, the Bitcoin finance company will likely collapse. If it doesn't heal the banks, the Ministry of Finance market is approaching collapse
– June 9, 2025
Some of the Crypto community are opposed to Bitcoin's treasures for a variety of reasons, including centralization, paper asset trading, and lack of ease of use.
The story surrounding Bitcoin has shifted from Wall Street's denial to the basis of another unsafe asset traded by it. Time shows what sustainable bitcoin will look like if its derivatives fall apart. As of June 2025, only a few experts have expressed concern about paper Bitcoin trading.
Some believe that mandatory proof of proof will reduce the risks associated with paper Bitcoin. However, the practice of how exchange behaves must be changed. Others are keen on Bitcoin's independence and do not trust funds to Bitcoin finance companies or other intensive organizations.
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