The 2008 Crisis and Bitcoin: Unraveling the Connection

You might not remember, especially if you were young, but 2008 brought one of the worst financial crises ever. In the early 2000s, home prices in the U.S. and other countries skyrocketed due to low interest rates and the widespread belief that real estate values would keep rising. Banks started issuing high-risk “subprime” loans, offering easier terms but at higher interest rates.

The situation worsened when home prices started falling and interest rates began rising. Many borrowers with subprime mortgages—often approved despite incomplete documentation or poor credit histories—could not afford their payments. This snowballed, affecting many financial institutions that had lent money to banks.

The 2008 financial crisis can be defined as a “boom-bust” event. Quoting Diego Giacomini, the author of “The Revolution of Freedom” (p. 276):

“Central banks artificially lower interest rates and inject credit into the economy without genuine savings. Simultaneously, they purchase treasury bonds to finance expansive public policies. These bonds accumulate on their balance sheets, expanding the monetary base. This creates a bubble driven by risky investments and excessive consumption, fostering a temporary illusion of wealth that encourages further spending and investment. However, this artificial boom eventually gives way to a deflationary crisis—a correction of previous imbalances—resulting in macroeconomic repercussions such as decreased activity and employment.

Many refer to these crises as ‘capitalist recurrent crises’, which is curious because they also occurred before the rise of capitalism. These crises always stem from monetary issues and are the outcome of money being artificially created”.

Giacomini brilliantly explains that, before such crises, there’s often a sense of economic expansion. However, there’s a disconnect between people’s decisions on how to distribute their consumption and savings, and companies – the interest rate plays a crucial role in this information exchange. Shortly thereafter, banks begin offering loans with extreme ease, leading to indebtedness among both consumers and numerous financial institutions. Eventually, the bubble bursts, triggering severe liquidity problems and resulting in a harsh recession.

That’s how it went… the bubble burst on September 15, 2008, with the Lehman Brothers bankruptcy, then the fourth largest investment bank in the United States. This set off a massive crisis of confidence, leaving a staggering $639 billion hole and marking the largest economic downturn in the U.S. since the 1929 crisis, famously known as “The Great Depression”. In 2007, the U.S. unemployment rate stood at 4.6%, but during the crisis, it soared to its peak of 10% in October 2009 – according to data from the U.S. Bureau of Labor Statistics. Meanwhile, the poverty rate was 12.5% in 2007, rising to 15.1% by 2010 – based on figures from the U.S. Census Bureau. Naturally, this economic downturn swiftly spread across the globe.

You might think that the 2008 crisis taught investors the importance of truly understanding complex financial products and their risks. But people tend to have short memories, which is why it never hurts to revisit significant events and analyze what happened. It’s all too easy for politicians to urge blind trust in the banking and financial system, when in reality, “boom-bust” crises recur due to artificial money creation and poorly managed risks—two intrinsic aspects of the current financial system.

However, human action ultimately triumphs over bureaucratic idiosyncrasies. Bitcoin emerged as a direct response to the 2008 crisis, proposing a decentralized financial system beyond government control and corporate influence. On October 31, 2008, an individual or group, under the pseudonym Satoshi Nakamoto, shared a white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” on a mailing list, laying the groundwork for other cryptocurrencies’ development and fostering further innovation in finance… Bitcoin principles include zero reliance on a central authority, public transaction verification via Blockchain, and cryptography’s use —the science behind confidential information encryption.

The rest is history.

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