Was Bitcoin built for banking crisis?
Finance Minister Nirmala Sitharaman, recently chaired a meeting with Indian public sector banks, as the domestic banking fraternity monitors global crisis closely. A contagious spread of bank failures in the Q1 of 2023 lumbers on just as the cascading collapses of cryptocurrency enterprises following the fall of FTX in 2022. A vital part of the developing American tech sector, Silicon Valley Bank (SVB) grew to manage billions of dollars while providing crucial liquidity for numerous innovative businesses. Yet, most of the easy access to investment money and the low interest rates of the 2010s have completely disappeared with the COVID-19 outbreak.
The last few weeks have seen several banks in the US, including Silvergate, SVB, Signature Bank, and First Republic Bank, entering the ICU or simply collapsing , necessitating intervention from the public or private sectors. However, the tremors of this are global and not confined just to the US. Deutsche Bank and Credit Suisse are examples of European banks that experience similar difficulties.
The US’s struggling banks have been hit with “monetary bazookas” from the Federal Reserve, but the market’s perception of the Fed’s plan is still unclear. The enormous supply of cash has confused the market even though interest rates have been rising.
Many investors have pivoted to alternatives like Bitcoin, gold, and real estate as a result of this uncertainty. The Bitcoin community has had a “psychological awakening” as a result of the mounting worries about the security of conventional banking which has caused money to pour into money market funds and other non-deposit assets, stressing the banking sector further, along with the need for higher rates. This is the main reason why bank runs continue to occur.
In my opinion, the time when banks could gain from free deposits is nearing end as the responsiveness of deposits to changes in interest rates is dramatically escalating. Notwithstanding the severe circumstances, I am optimistic the banking crisis will eventually be resolved as governments and central banks make unrelenting efforts to stop bank failures both domestically and abroad.
Efforts to stabilise the economy would in all probability see some success but will probably result in additional inflationary pressures and a rise in food prices. Investors are scrambling to diversify their portfolios and putting their faith in alternatives like Bitcoin in the interim. In the network, over 4.28 million Bitcoin wallets with balances of at least 0.1 BTC have been generated.
It is evident a younger age is more likely to rely on software-driven solutions than human-led systems as the world struggles to traverse this financial quagmire. Investors, even more so now, need to pay close attention to central bank reactions. As the global banking crisis develops, developments in Europe and other impacted regions can provide some insight.
And it would be no surprise if alternative assets like Bitcoin may wind up being the biggest winners in the long run, if the current trends of a debt-based economy and a fractional reserve banking system continue.
The most difficult lessons from the 2008 crisis have been steadily forgotten, the lessons that gave birth to Bitcoin. That it’s crucial to keep in mind the reasons why so many individuals invested in Bitcoin as the global economic system descends into ever-deeper uncertainty.
The questions before us is - was bitcoin built for a banking crisis?