By Larry Wright
Following the testimony of the Federal Reserve chair on the matter of interest rates hiking, the cryptocurrency markets experienced a temporary slump. However, post the demise of 3 traditional banking sectors, the pace of the cryptocurrency markets is once again picking up.
The collapse of this banking enterprise has recreated the catastrophic atmosphere of the 2008 financial crisis once again. Fear is running high among investors, and the government is taking emergency measures to prevent the spread of this financial decimation.
However, Bitcoin prices have surged dramatically once again, with an expectation to reach the high of $30K. At the same time, the crypto proponents have started to emphasize the necessity of Bitcoin as an alternative to the traditional banking network.
On the other hand, the depositors of two out of the three banks that have collapsed have received government aid that resembles a bail-out. However, this bail-out is not like the one that happened during the 2008 financial crisis since no tax-payer money is directly involved.
The FDIC has offered financial relief to two out of three banking enterprises using the insurance money that is used by banks. Therefore, SVB and Signature bank have been moved into receivership. It means that FDIC will be able to recompense all deposits regardless of the traditional $250K limit.
On the other hand, the stock investors of these banks are going to convert their equity to zero. Therefore, the Treasury Department has classified this bail-out as falling outside the bounds of the traditional bail-out.
Many financial analysts have pointed out the fact that banks were already facing issues on account of the ongoing economic downturn. However, the current reiteration of quantitative tightening may have contributed to the sales of these banks.
During this commotion, another reason for increased traction in Bitcoin positions is the fact that many are concerned about the political bias that decides which enterprises may or may not qualify for government assistance. Therefore, many are leaning in favour of neutral monetary networks like cryptocurrencies.
Risk Management Failure
According to a recent analysis published by Andy Kessler in WSJ, the current bear market started 14 months ago. Therefore, the management of SVB had plenty of time to figure out the inevitable quantitative tightening policies.
Based on these facts, he asserted that the downfall of SVB can be traced back to the failure of risk management by its officials. Another assertion reveals that SVB has been proactive in taking the approach to intercept the regulations that allowed it to take more risks.
Media reports have revealed that SVB CEO Greg Becker was a staunch Trump supporter and favoured the idea of stress tests and liquidity requirements. During this time, there have been some fearmongers on social media that have exacerbated the panic situation by spreading fear among their massive followership.
Despite inciting induced bank runs, such stakeholders might be able to regain access to their stakes with the cooperation of government agencies. Despite the buffers enacted by the government, they continue to prioritize profits regardless of the danger of deepening this financial chaos.