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Banks Bust, Bitcoin Booms: Price Skyrockets 40% During US Banking Crisis

Bitcoin, the enigmatic digital currency, is back in the spotlight as the US banking system grapples with mounting stress. While some predict a stratospheric rise to $1 million per coin, fueled by economic woes, others remain skeptical.

Banking On Bitcoin’s Rise?

Bitcoin advocates see it as a beacon of stability in a storm. Unlike traditional assets tied to the health of institutions, Bitcoin boasts a finite supply and decentralized nature. This, they argue, positions it perfectly to benefit from a “flight to safety” scenario, where investors seek refuge from a potentially collapsing banking system.

The recent history seems to support this narrative. In March 2023, the failures of prominent institutions like Silicon Valley Bank coincided with a 40% surge in Bitcoin’s price within a week. Industry figures point to this as evidence of Bitcoin’s role as an “uncorrelated asset class” – a hedge against traditional financial turmoil.

Further bolstering this argument is the latest report by the Federal Deposit Insurance Corporation (FDIC). The report paints a concerning picture, highlighting a worrying trend of unrealized losses on securities held by US banks.

These losses, driven by rising interest rates, have ballooned to over $500 billion. Additionally, the number of banks on the FDIC’s “Problem Bank List” has grown from 52 to 63 in just one quarter, raising fears about the overall health of the sector.

Million-Dollar Dream Or Flight Of Fancy?

While the potential for Bitcoin to gain value seems undeniable, the ambitious price target of $1 million faces strong headwinds. Experts warn that such a dramatic surge might come at the cost of a full-blown economic meltdown, a scenario that wouldn’t necessarily benefit Bitcoin in the long run.

Furthermore, Bitcoin’s historical correlation with other assets is not static. While periods of weak correlation exist, there have also been instances of strong correlation, particularly during broader market downturns. This casts doubt on Bitcoin’s ability to completely decouple itself from a struggling traditional financial system.

Another factor to consider is the recent uptick in the M2 money supply, a metric representing the total money circulating in the economy. Historically, periods of M2 expansion have coincided with Bitcoin price increases. However, the interplay between money supply and Bitcoin in an environment with a potentially shaky banking system remains an open question.

The Road Ahead For Bitcoin

Bitcoin’s future is a bit of a guessing game right now. Banks in the US are having some problems, and that could make Bitcoin more valuable. But if the whole economy goes downhill, even Bitcoin might suffer. So, it all depends on how bad things get with the banks and the economy in general.

Featured image from Pngtree, chart from TradingView

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US Banks Rally For Updated Crypto Guidelines As Digital Asset Prices Surge

Amidst a significant surge in cryptocurrency prices, which propelled the total crypto market capitalization to a high of $1.93 trillion on Thursday, influential interest groups are urging the US Securities and Exchange Commission (SEC) to revise accounting guidance that imposes higher costs on US banks for holding digital assets on behalf of their customers.

Banking Trade Groups Urge SEC To Revise Crypto Accounting Rules

According to a Bloomberg report, a coalition of trade groups, including the Bank Policy Institute, the American Bankers Association, the Securities Industry and Financial Markets Association, and the Financial Services Forum, sent a letter to the SEC on Wednesday outlining their desired changes. 

The existing guidance requires public companies, including banks, to treat cryptocurrencies they hold in custody as liabilities on their corporate balance sheets. Consequently, banks must allocate assets of a similar value to comply with capital requirements and protect against potential losses.

According to Bloomberg, the trade groups have requested the SEC to consider the following key changes:

  1. Exclude certain assets from being classified under the broad crypto umbrella. This includes traditional assets recorded or transferred using blockchain networks, such as tokenized deposits, as well as tokens underlying SEC-approved products like spot Bitcoin exchange-traded funds (ETFs).
  2. Grant regulated lenders an exemption from the current balance sheet requirement while maintaining the disclosure of crypto activities in financial statements.

The trade groups argued that if regulated banking organizations are unable to provide digital asset-safeguarding services at scale, it would negatively impact investors, customers, and the broader financial system. 

However, the SEC has defended its accounting guidance, citing the “unique risks” and uncertainties posed by cryptocurrencies compared to other assets held by banks. 

Limiting Custody Expansion?

The specific guidance in question, known as Staff Accounting Bulletin No. 121, has faced criticism from banks since its publication in 2022. 

Lenders argue that the bulletin limits their ability to expand digital asset services for customers due to the associated high costs. Consequently, banks missed out on providing custody services for recently approved Bitcoin exchange-traded funds, with Coinbase emerging as the preferred custodian for the majority of ETF issuers.

The trade groups also highlighted additional challenges resulting from the guidance, including a “chilling effect” on plans to utilize blockchain technology for traditional assets. While the SEC described SAB 121 as non-binding staff guidance, it acknowledged that following it enhances disclosure to investors regarding firms safeguarding crypto assets for others.

As the SEC faces mounting pressure, there have been efforts by lawmakers to repeal the guidance.  A resolution was introduced in the House Financial Services Committee, spearheaded by Representatives Mike Flood and Wiley Nickel, while Senator Cynthia Lummis sponsored identical legislation in the Senate. These measures aim to remove the SEC’s authority in making rules that impact bank custody.

The outcome remains uncertain, as the legislation’s success depends on garnering sufficient support, particularly among Democrats and within the White House. 

However, the collective efforts of trade groups, lawmakers, and industry stakeholders could potentially lead to regulatory changes that alleviate the burden on banks holding digital assets, facilitating their participation in the evolving cryptocurrency landscape.

Furthermore, the recent endeavors undertaken by US institutions exemplify a growing interest and eagerness to adopt and invest in cryptocurrencies, particularly Bitcoin. 

This heightened institutional involvement has significantly contributed to the swift success of Bitcoin spot ETFs, which gained regulatory approval merely a month ago.

Crypto

Featured image from Shutterstock, chart from TradingView.com

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If Over 2,300 Banks In America Are Bankrupt, Will Bitcoin Break Above $40,000?

The United States banking system is in trouble as over 2,300 financial institutions could have more liabilities than assets, recent analysis reveals. Subsequently, analysts say this could boost Bitcoin prices in the weeks and months ahead if the government doesn’t proceed carefully.

US Banks Burning Through Capital Buffers

The US Treasury and Federal Reserve say that the problems are peculiar to just individual banks, but experts are warning that the situation is much worse than the government admits.

With the anti-inflationary measures in place, almost half of America’s 4,800 banks are burning through their capital buffers, and there is still more tightening to come from the Fed.

The full effect of monetary tightening by the Fed has yet to hit the economy, and only then would experts know whether the United States financial system will be able to safely deflate the excess leverage induced by extreme monetary stimulus during the pandemic between 2020 to 2021.

The White House did not offer a blanket guarantee for all deposits because that would look like social welfare for the rich. Besides, the Federal Deposit Insurance Corporation (FDIC) reportedly has only $127 billion of assets and may require its own bailout.

For that reason, financial institutions are now pressuring the United States Securities and Exchange Commission to crack down on short-selling strategies that profit when bank stocks slide.

Lindsey Johnson, CEO of the Consumer Bankers Association, urged policymakers to take a serious look at the financial havoc wreaked by short-sellers.

Bank Failures Could Drive Bitcoin Prices

The turmoil in the banking industry is a concern for the Biden administration. If thousands of banks in the United States were to fail, it is possible that some investors could turn to Bitcoin as a way to protect their assets.

With the Biden administration’s stance on cryptocurrencies, any action that places the banking system in jeopardy could drive Bitcoin prices higher, even above $40,000.

Bitcoin Price On May 7| Source: BTCUSDT On Binance, TradingView

The SEC is not currently contemplating any ban on short-selling bank stocks, according to a senior agency official.

In 2008, the SEC called time-out on short-selling on nearly 1,000 financial stocks in a bid to restore faith in public markets.  However, the New York Fed later found that the ban did little to stem the financial stock market that was flaying out of control.

Another study discovered that most of the stocks protected by the ban lost the citizens’ confidence, suffering “a severe degradation” in market quality, price impact, and volatility.

As financial institutions press the SEC to take action against short-sellers, and their role in the market, which is impacting Americans’ confidence in the financial system. Yet, any careless moves to pull the pin could create more fissures, possibly buoying crypto and bitcoin prices.