The recent US banking crisis has brought up an important question: should you keep your money safe under your mattress, or in bitcoin?
The failures of Silicon Valley Bank, Silvergate Bank, and Signature Bank have caused US banks stocks to drop. As Silicon Valley Bank collapsed after a $42 billion bank run, people are now desperate to look for solutions to protect their assets in the middle of an economic slowdown, and amongst the many choices out there, people are turning to bitcoin.
Over the past week, bitcoin and the rest of the crypto market have been enjoying a price rally – with prices on Tuesday hitting $26,000 for the first time after the collapse of the Terra ecosystem back in mid 2022.
It’s also important to remember that the Bitcoin network was created in response to the 2008 Great Financial Crisis. Designed to take out third party intermediaries from banking and empower its users, crypto assets offer “root ownership” – where no one can make a run for your deposits, and prevent the misuse and misallocation of assets typically caused by the traditional, custodial banking system.
So, it’s no wonder that as more people begin to lose faith in traditional banking, people are getting more curious about turning their assets into crypto. But is this a wise decision to make?
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In the context of most US-based fiat checking accounts, up to $250,000 is insured by the Federal Deposit Insurance Corp. (FDIC), which should be safe for the everyday individual.
However, around 85% of Silicon Valley Bank’s depositors held money in accounts that were not insured by the FDIC, and this money may not be able to be retrieved unless federal action or purchase of the bank were to happen.
While the US government’s finance officials – the Treasury Department, the Federal Reserve, and the FDIC have been scrambling to dispel panic, President Joe Biden stated that US taxpayers would not have to pay for the losses caused by Silicon Valley Bank’s bank run, unlike what happened in 2008.
Both Silicon Valley Bank and Signature relied on support from the Federal Reserve. Some argue that the Fed created the tech hype cycle that propelled a ton of venture capital financing through low interest rates, and thus brought on clumsy management from the two banks that led to their respective crashes. But is it the Fed’s responsibility to repair what went wrong? And where would they be getting that money for a billionaire bailout from?
Despite the presidential reassurance, the US government always had interest in bailing out banks – which poses way more questions than giving answers on how to protect your own assets.
While it’s known that the Fed’s aggressive rate hikes and a balance sheet reduction have contributed to Silicon Valley Bank’s failure, maybe now’s the right time to find a practical way to ease out government-tied traditional banking.