WBTM on Nostr: The #cycleOfaBank collapse can indeed unfold in Bitcoin banks or exchanges due to ...

The #cycleOfaBank collapse can indeed unfold in Bitcoin banks or exchanges due to similarities in financial practices and risk factors. In centralized exchanges or custodial wallets, users entrust their Bitcoin to third-party entities, akin to depositing funds in a bank.

These entities often engage in lending and leverage, potentially becoming over-leveraged. If borrowers default or market sentiment sours, it could trigger a run on the exchange or custodian, leading to insolvency and collapse.

The phrase "not your keys, not your Bitcoin" underscores the risk of trusting third parties with custody, emphasizing the importance of self-custody and decentralized solutions to mitigate such risks.