By George Ward
Cryptocurrency might be on the verge of seeing a significant upward spike following the latest report by the US Federal Deposits Insurance Corporation (FDIC). The FDIC noted that US stocks came tumbling in the first three months of 2023 after a massive bank run with billions of dollars removed from financial institutions in the country.
Bank Failures And Massive Shift Towards Crypto
Accordingly, the FDIC research highlights the recent collapse of Silicon Valley Bank (SVB), First Republic, and Signature Bank. Observers believe that the aggressive interest rate hike by the Federal Reserve partly contributed to the crumble of the once-buoyant banks.
Per FDIC, depositors made history by withdrawing $472 billion last quarter. This marks the fourth consecutive quarter of declining deposit totals and represents the highest quarterly withdrawal amount from top US banks as recorded by the FDIC since the inception of statistical tracking in 1984.
US banks are still feeling the effects of these withdrawals, as ten of the largest US banks by market cap saw the value of their stocks decline by one percentage point earlier this week. According to the FDIC, the primary factor contributing to the outflow of deposits was the move by depositors to seek safety by moving funds exceeding the $250,000 threshold allowed by the insurer.
Notably, as individuals diversified their holdings during this quarter, the overall sum of insured deposits held by banks increased. Following the report’s release, the S&P 500 bank index experienced a decline of 2.6%, descending to its lowest level in nearly a fortnight and poised to register its most significant one-day percentage decrease since the beginning of May.
Notably, Comerica, Citizens Financial, and KeyCorp experienced the most significant declines in terms of percentage. Despite the inherent resilience of the industry, FDIC Chair Martin Gruenberg cautioned that the full extent of the turbulence might only be visible once the agency unveils its second-quarter results.
Gruenberg further emphasized that the industry faces ongoing inflation, rising interest rates, and economic pressures. These factors, particularly in sectors like commercial real estate, pose significant threats to the stability and well-being of the industry.
Will This Benefit Crypto?
Significant withdrawals from banks in the United States can positively impact cryptocurrencies. When individuals withdraw substantial sums, some funds may find their way into digital assets such as Bitcoin.
This influx of capital into cryptocurrencies has the potential to stimulate demand, subsequently driving up their value. Furthermore, as funds flow into cryptocurrencies, it diversifies the finance ecosystem and diminishes the reliance on central banks.
This sudden shift in the financial ecosystem promotes alternative avenues of storing funds and transactional mechanisms outside the traditional banking system. With decentralization, the utilization of cryptocurrencies enhances financial transactions by offering increased privacy, security, and personal financial control.
It also reduces transaction costs and accelerates settlement processing times by eliminating the need for intermediaries. Observers noted that the significant withdrawals from financial institutions in the US could increase the prominence, widespread adoption, and advancement of cryptocurrencies.
However, the actual impact depends on various factors, including the magnitude of the withdrawals, the prevailing market sentiment, the regulatory landscape, and the overall state of the crypto market.
Meanwhile, there will always be an overlap between the traditional finance and the crypto sectors. For instance, SVB, a financial institution based in Silicon Valley, emerged as a crucial supporter of the crypto industry before its issues, boasting a substantial $200 billion in assets.
It gained unprecedented attention for being among the limited number of US-based banks that extended their services to crypto platforms. Also, digital asset businesses enjoyed seamless and instant crypto-to-crypto currency transfers by leveraging Signature Bank (another crypto-friendly bank) ‘s innovative Signet payment system.
Signet played a vital role in the operations of numerous prominent exchanges, such as Coinbase, becoming a critical component of their infrastructure.
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