I can envision some future well polished crypto ecosystem being good for banking, but even if it were just Bitcoin (I prefer monero but it wouldn’t work for other reasons), it has some properties that could make collapses or crises spectacularly bad. Fundamentally it’s not that different from wildcat banking which we moved on from because it led to lots of fraud and collapses. Anyway, for just Bitcoin:

Bitcoin isn’t ideal for payments still and, speaking personally, I don’t want to ever be in the situation where I have tens of thousands of dollars that could permanently evaporate just because I forgot a code. So in practice I think most people would want custodians to facilitate payments or larger deposits. And it’s still possible for those custodians to make a purely technical fuck up and permanently lose funds in a way that is unrecoverable and irreversible but not possible in the current banking system.

Any coin with a fixed supply will be very deflationary which will make lending very difficult. Ever since we made it really hard to build new buildings and decided most early stage businesses are too risky for banks, it kinda seems like this isn’t as bad as it sounds. But, people are gonna want to do it sometimes and it will be hard. And you can’t rely on a basal protocol for a real world lending system because most real world loans can’t be fully/overcollateralized like with crypto (there is only a market for this because of tax avoidance that AFAIU is not even tested in court) and there is a real risk someone will not be able to pay it back, you need an oldschool system for stopping fraud and handling bankruptcies up to and including a guy with a gun taking away your toys.

If we’re gonna have custodians and a market for loans, I got bad news for you, some custodians will combine the two and pass on those benefits to consumers. If done with CD-like instruments this won’t change things much, until some bank gets this genius idea: if a lender and lendee make most of their payments within the same bank, you don’t actually need to debit the lender the full loan because most of that money will stay within the bank. And if lender-custodians all partner up they can fully debit all such loans. And then because lenders don’t get their accounts locked up, whether or not their balance is loaned and for how much can be completely abstracted and presented as a shared flat yield across all lenders at the bank… (this is a simplified version of modern banking)

Maybe it won’t be exactly like that, but I guarantee you, something banking-like will happen. And eventually a bank will fail because of bad risk management or a bank run. With crypto, it actually is feasible to do a huge bank run of all your money even if it’s millions of dollars, so it’ll be quick and sharp. Anybody who isn’t fast enough loses everything with no Fed to help them, we hit an extremely severe and instant deflationary depression where credit is completely unavailable, and there is no Fed to pass centralized monetary policy measures to fix it.

Instead of speedrunning digital Black Friday, I’d rather the Fed just let any individual meeting whatever reserve/audit/whatever requirements use any special facility available to member banks (or remove a facility if it cannot be offered as such). So rather than replace the system due to an unfair advantage, let everybody play by the same rules. If a bank can’t compete with that, they’re not a viable business. As a consumer I can better manage my risk within what is (to me) a very similar system. Ultimately, I want the Fed to be able to buy treasuries (print money) and raise/lower rates to control inflation because I’ve tried to learn as much as I can about banking history, economics, and crypto and this still seems like the most solid way to control inflation and prevent depressions.