First Silvergate, then SVB, and Signature bank, all in a short time. Liquidity starvation for crypto?
Crypto’s banking rails have been effectively shuttered in less than a week. Next up, USDC.
The message from DC is clear: crypto is not welcome here.
— Ryan Selkis 🥷 (@twobitidiot) March 12, 2023
Can it get any worse for crypto?
For crypto to finally make it into the mainstream of finance, it is having to surmount some hefty barriers. The biggest until recently was the incoming regulations, thought by many to be extremely harsh and counterproductive.
Now, in one fell swoop, all the main banking on/off ramps for crypto have been cut off. Without liquidity being able to enter the crypto ecosystem it will potentially wither and die.
Bank runs show the fragility of the system
This at a time when the world needs the financial innovations that are coming out of crypto like never before. The bank runs that have been experienced over the last few days are testament to just how fragile, archaic, and lacking in resilience the legacy banking system really is.
The run on the Silicon Valley Bank (SVB) over the last few days is one good example of this. What happened here is why human error has to be erased from the equation. The stupidity of buying long term treasuries when interest rates were at zero, and then having to sell them at a loss when interest rates went up and depositors started pulling their money, was all completely avoidable.
With other banks also now on the precipice, this has prompted the Treasury, the Federal Reserve, and the FDIC to take rapid action over the weekend to effectively bail out depositors at SVB, and also at Signature Bank which failed and was taken over by its state chartering authority on Sunday.
How much more currency will have to be printed in order to backstop these banks, as well as the others that are close to following them, is anyone’s guess.
Bitcoin fixes this
It was for exactly this sort of systemic failure that Bitcoin was launched 14 years ago. It is known exactly how much bitcoins are being issued as it is all built into the code. Governments can’t take it away from citizens, and it can be used to transact with anyone in the world without banks saying that you can’t.
Now that the biggest fiat on/off ramps have been taken away, many might say that this cuts off Bitcoin’s life blood, but just take a look at what is happening in Nigeria. The country launched its central bank digital currency (CBDC), the eNaira, but uptake is negligible as Nigerians just don’t want it. Instead, Nigerians are paying up to a whopping 60% premium at the official Naira rate in order to get bitcoin.
With more bank runs imminent, bitcoin is going to be even more attractive. Peer-to-peer bitcoin platforms may once again become incredibly popular.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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