Our experts told us how the banking crisis in the U.S. affects the prices of cryptocurrencies. And why they are perceived as an alternative investment asset amid uncertainty.
On Monday, May 1, regulators closed the troubled American bank First Republic. The bank went under the external management of the U.S. Federal Deposit Insurance Corporation (FDIC). The collapse of First Republic set another anti-record. This bank was the third largest of the collapsed financial companies since the 2008 crisis.
At the opening of trading on May 2, shares of three more American banks – PacWest Bancorp, Western Alliance and Metropolitan – collapsed by almost 30%. Because of the volatility, exchanges suspended trading in shares of all three financial institutions. At the same time, bitcoin gained 2% in price, rising to $28.5 thousand after its recent fall.
Banking crisis is just starting
The banking crisis has not yet shown itself on the world stage. But the fact that regulators have to figure out how to put out the blazing fire is evident in their comments, according to our experts.
In general, the banking crisis as a crisis of confidence in the banking system helps cryptocurrencies. But it would be too reckless to expect such a straightforward correlation, our experts say. Bitcoin exchange rate, takes into account other factors. For example, regulatory uncertainty, the state of financial stability or problems of stabelcoin issuers. It also takes into account inflation, approaching halving or expiration of Bitcoin futures contracts.
In the last week of April, bitcoin’s price rose on the back of First Republic’s problems. When there was still no news of its final collapse. However, cryptocurrency trading was quite unstable. Because in addition to the impact of the banking crisis on the cryptocurrency rate, investors were guided by the inflation figures. And also on the policy of the U.S. Federal Reserve (Fed), the possibility of recession and the weakening of the dollar.
First Republic became the fourth U.S. bank to collapse this year. Silvergate and Signature closed in March. Which largely focused on crypto-industry customers. And also Silicon Valley Bank, the collapse of which also hit the rate of the second most capitalized USD Coin (USDC) stabelcoin. If in the case of the first two there was a clearly visible dependence on the crypto market. First Republic Bank seems to have collapsed without any connection to digital assets. According to reports studied by journalists of specialized publications, the bank lacked any cryptocurrency capital.
Linking the U.S. banking crisis to the rise of Bitcoin
The link between the U.S. banking crisis and the rise of Bitcoin is that both events are indicative of the instability of the banking system. And they are alarming for investors. Cryptocurrencies act as an alternative investment asset that is not subject to control by central banks and does not depend on financial institutions. The collapse of banks could increase interest in cryptocurrencies. As many people are looking for safe places to invest in times of economic instability, our experts believe.
As banks face insolvency, their depositors try to withdraw money from their deposits en masse. Any collapse provokes the depositors to withdraw money from other banks as well. Which also run the risk of liquidity shortages. As long as the money is in the bank, the bank actually owns it. Cryptocurrencies, on the other hand, give a tool for owning value with full control of its owner.
However, we should not forget that the cryptocurrency market is also subject to fluctuations and instability. Especially in light of strict regulation by governments and central banks. In addition, cryptocurrencies can be subject to fraud and cyberattacks. And this can cause investors to lose money. Thus, any investment, including cryptocurrencies, should be made after careful risk analysis.
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