Important events from the past week
A bank run occurred at the three major banks in the American (fin)tech sector: Silvergate Bank (SI), Silicon Valley Bank (SVB), and Signature Bank (SBNY).
To prevent further escalation (domino effect), the American banking system intervened and guaranteed all deposits held at these banks. Shareholders, however, will lose their investments.
As a result of the chaos and uncertainty, multiple crypto stablecoins temporarily de-pegged, and the stock prices of other banks dropped significantly.
Bitcoin then rose by more than 20%.
Biden’s response to the events
Banks vs. Bitcoin
Banks📉
Bankless📈 pic.twitter.com/apCm1niax8
— Bankless (@BanklessHQ) March 13, 2023
Why the 20% increase?
It is always challenging to pinpoint the exact reason for an increase or decrease in price. Perhaps the most important point is that the collapse of banks reminds many of the banking crisis of 2008. Satoshi Nakamoto created Bitcoin, among other reasons, in response to this. Bitcoin is scarce, decentralized, and you don’t have to take third-party risk with a bank.
The brief collapse of USDC also caused a lot of chaos, and the easiest and most logical way to quickly convert it was to (safely) exchange it for Bitcoin.
We do not need banks
We do not need on/off-ramps
Just start asking #bitcoin for your products & services
Just start using products that can be bought with BTC
Just stop using banks and fiat (USD, EUR, etc) pic.twitter.com/Za5ubaQrBf
— PlanB (@100trillionUSD) March 13, 2023
What can we expect in the coming time?
The Federal Reserve (FED) is now in a very difficult position. Recently, they have increased interest rates at an unprecedented speed from -0.5% to 4.75% at the time of writing. They are doing this to combat the high inflation that has emerged.
Since inflation is still around 6%, the FED’s plan is to continue raising interest rates.
However, the risk of more banks collapsing and a bigger crisis now seems so significant that raising rates again by 0.5 basis points carries a lot of (systemic) risk. On the other hand, high inflation remains a lurking threat. It is indeed a complicated dilemma!
The #Fed is in an ‘awkward’ position with collapsing #banks on one hand and still far too high #inflation on the other. Good luck!
At @deaandeelhouder https://t.co/UINGuVeLqD
— jeroen blokland (@jsblokland) March 14, 2023
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