Bitcoin Faces ‘Bank Run’ Vulnerability, Warns Cyber Capital Founder Justin Bons
2024-11-20

Bitcoin BTCUSD may be at risk of a catastrophic “bank run,” according to Justin Bons, founder and CIO of Cyber Capital. 
A bank run is when customers withdraw their deposits from a financial institution over fears of insolvency. 
Bitcoin Cannot Handle Mass Exits, Bons Says
In a detailed social media thread, Bons highlighted critical flaws in Bitcoin’s transaction capacity, self-custody model, and network security. In his opinion, these could lead to a crisis that would destabilize the network and devastate investors. 
Bons’ analysis centers on Bitcoin’s limited transaction processing capability, which he calculated at approximately seven transactions per second (TPS). Using data from Glassnode and Bitcoin’s code, he argued that Bitcoin’s 33 million on-chain users would face a bottleneck if a mass panic triggered simultaneous exits. 
“At this rate, the queue would be 1.82 months long under optimal conditions. However, in reality, transactions would get stuck and eventually be dropped, making it impossible for smaller parties to exit unless they pay exorbitant fees,” Bons explained.
Bons warned that this limitation could lead to a “death spiral,” where a price crash forces miners to shut down, slowing the network further. The resulting delays could deepen the panic, creating a vicious cycle of declining hash rates, prolonged block times, and falling prices. 
Further in his critique of BTC, Bons claimed Bitcoin’s transaction capacity is insufficient for real-world use. He compared Bitcoin’s 7 TPS to other systems, such as Visa’s 5,000 TPS, or even competitors in the crypto space that exceed 10,000 TPS without sacrificing decentralization. 
“There are literally ZERO use cases that can be supported by 7 TPS. Mass self-custody over BTC is a dangerous narrative. The only scalable path forward for BTC adoption is through centralized custodians and banks, contradicting its ethos as ‘freedom money’,” he stated. 
Bons also questioned Bitcoin’s long-term sustainability, citing its shrinking security budget. This, in his opinion, is a critical issue that could exacerbate the risks he outlined. The thread also touches on Bitcoin’s deviation from its original vision as “peer-to-peer (P2P) electronic cash.” He lamented that the network’s constraints and governance have turned it into a speculative asset rather than a practical medium of exchange. 
Heated Bitcoin Debate on Social Media 
“This is pure fantasy. If this was going to occur, it would have occurred years ago,” Flanagan argued.
Bons rebutted, asserting that the risk increases as the number of users grows. He noted that even a fraction of users leaving could trigger a run and added that the larger the network gets, the more severe the problem becomes.
Other users highlighted potential alternatives, such as trading wrapped Bitcoin WBTC on Ethereum, which bypasses Bitcoin’s base layer limitations. Bons acknowledged this but noted that wrapped BTC users could exit quickly while on-chain users would be trapped, exacerbating the sell-off. The discussion also extended to Bitcoin’s self-custody model.
“This is something that self-custody advocates should pay attention to. One tiny bit of FUD and everyone gets their money stuck,” DashPay’s Joel Venezuela remarked.
Bons responded, acknowledging the difficult position he finds himself in as a cypherpunk and self-custody advocate. Another user raised a comparison to gold, questioning how long it would take to liquidate global gold holdings. Bons countered that while gold also has practical limits, its theoretical transaction capacity far exceeds Bitcoin’s, making it less susceptible to such bottlenecks. 
Critics of Bons’ analysis argue that Bitcoin has weathered similar concerns in the past without collapsing. However, his warning adds to a growing chorus of voices calling for a reevaluation of Bitcoin’s scalability and usability. 
Despite his grim outlook for Bitcoin, Bons remains optimistic about the broader cryptocurrency space. “There is much hope left for cryptocurrency as a whole,” he concluded, suggesting that Bitcoin’s original ethos now thrives in other blockchain projects. 
Meanwhile, while Bitcoin remains the dominant cryptocurrency, debates over its scalability and resilience continue. Bons’ warning serves as a stark reminder of the challenges Bitcoin faces as it seeks broader adoption in a changing financial space. Elsewhere, Galaxy CEO Mike Novogratz has almost similar reservations about a Bitcoin reserve in the US.
“I think that it would be very smart for the United States to take the Bitcoin they have and maybe add some to it… I don’t necessarily think that the dollar needs anything to back it up,” Novogratz claimed.