Bitcoin Breaks Through Against the Backdrop of the US Banking System Collapse
Over the past few decades, a lot has changed in the finance and banking sectors. Thanks to technology, traditional banking systems have transformed into digital, reliable, secure, and more complex networks.
However, the bank failures and bankruptcies that took place in early 2023, including the Silicon Valley Bank collapse, have exposed major weaknesses in the system.
This article seeks to explore the collapse of US banks, how cryptocurrencies like Bitcoin may benefit, the challenges that lie ahead, and more.
The US Banking System Collapse
In March 2023, two of the largest banks in the United States, Silicon Valley Bank (SVB) and Signature Bank, collapsed. Such an incident was last witnessed in the 1930s, leading some to wonder if the country may be heading towards a new widespread banking crisis.
Silicon Valley Bank served capital firms and had invested so much in technology. According to the financial report, the SVB had over $209 billion in assets as of 2022. This makes it the second-largest financial institution to fail since the establishment of the Federal Deposit Insurance Corporation (FDIC) in 1934.
Meanwhile, the Signature Bank served several real estate and law firms in New York. Signature was also among the few banks to embrace cryptocurrency deposits, and as of 2022, it had assets of nearly $110.4 billion. Here are a few banks that have failed in the United States since 2023:
| Bank Name | Assets as of the end of 2022 | Closing Date |
| Silicon Valley Bank | $209 billion | March 10, 2023 |
| Signature Bank | $110.4 billion | March 12, 2023 |
| Heartland Tri-State Bank | $122 million | July 28, 2023 |
| Citizens Bank | $226.7 billion | Nov 3, 2023 |
Concerns and How Crypto Benefits From This Situation
As the likes of SVB, Signature Bank, and others continue to fail, there is a lot of fear over the stability of the global banking system. The collapse of these big banks has really revealed the shortcomings of centralized financial operators.
A major impact of the SVB collapse on the crypto market is that it highlights the potential failure of banks to protect customers’ funds, prompting many to seek alternatives. Such uncertainty creates an opportunity for decentralized assets like Bitcoin and other cryptocurrencies to provide a solution.
The good thing about Bitcoin is that it is decentralized and independent of central banks or government-controlled financial institutions. Unlike traditional fiat currencies, Bitcoin uses a peer-to-peer network. This means users can exchange values directly, free from the risks of institutional failures or government interference.
Challenges and Uncertainties Remain
Undeniably, the banking crisis comes with its own issues. There are several factors that continuously hang in the air over the long-term prospects of Bitcoin and other cryptos as alternatives to traditional banking. Here are a few of these issues.
Crypto Market Volatility
Perhaps what concerns people the most about Bitcoin and other cryptos is their volatility. While we witnessed Bitcoin’s price rise significantly after the collapse of SVB, it has also been known to drop dramatically in the past. This causes investors to lose huge sums of money in a very short time.
Therefore, if Bitcoin is to ever find widespread adoption as an alternative, it will have to follow through with an understandable growth plan.
Regulatory Landscape
Governments around the globe have different perspectives when engaging with digital currencies. Some have fully accepted crypto, whereas others are trying to limit or ban them.
While there are regulations, the recent collapse of the SVB has led controllers in the US to pay close attention to the crypto market. This is a result of the role that decentralized finance (DeFi) plays within the broader economic system.
Integration with Traditional Banking
One other challenge for Bitcoin lies in its integration into the current banking system. For cryptocurrency to become more than a niche investment asset, it must be easily convertible into fiat and usable in day-to-day transactions.
A few financial institutions have now started to incorporate Bitcoin, but there is still a lot that needs to be done. This is in terms of interoperability between crypto and traditional banking systems.
Bitcoin Booms in the Wake of Crisis
Despite these challenges, one can’t deny that Bitcoin and the general cryptocurrency market have benefited from the banking crisis. The Bitcoin price after SVB collapse was $22,374.68, which was a 5% increase.
Indeed, traditional banks are working as smartly as they can to retain public confidence. However, Bitcoin has emerged as a unique asset independent of any authority or control. Many investors are currently using BTC. Although these cryptos are highly volatile, they’re also less vulnerable to collapses or failures.
What Does the Immediate Future Hold for Banks and Crypto?
The way forward for the relationship between traditional finance vs crypto is one of continued transformation. Here is an overview of some leading areas of focus.
Payment Option Integration
One of the main developments to watch is the use of Bitcoin as a means of payment in financial institutions. Major payment processors such as PayPal and Mastercard have already taken steps towards supporting the transactions with digital currencies and many more will follow suit.
New Crypto-Banks
If traditional banks continue to lose customer trust, new crypto-banks could emerge in this financial evolution. These new digital banks can start offering crypto savings accounts, cryptocurrency-leading services, and investment opportunities within a decentralized environment.
The Blessing of Governments
Perhaps what remains for Bitcoin to gain greater acceptance is a much clearer endorsement from governments. Some countries are still sceptical about the use of crypto. If they join others in recognising the benefits of blockchain technology and decentralized finance, then we would expect a Bitcoin price rise.
Business Adoption
Another factor that will go a long way in determining the future of Bitcoin is the level of crypto adoption by businesses. Of course, we already know that huge companies such as Tesla and Microsoft have invested very well in Bitcoin.
However, greater acceptance across industries has yet to come. If more businesses start using crypto for buying goods and services, then such a move might help in making crypto a more practical option for everyday use.
Impact on Central Bank Digital Currencies (CBDCs)
Governments are studying the use of digital forms of their national currencies called Central Bank Digital Currencies. These CBDCs might work in the decoupling of crypto and traditional markets by offering advantages such as faster transactions and lower costs.
However, they’re quite different from Bitcoin in that they would be completely centralized and dependent upon government regulations. Some even debate whether CBDCs will complement or compete with cryptocurrencies.
The Role of Regulations in the Future
The future of banking with Bitcoin and other cryptos is determined by the ever-changing regulations. The United States and the European Union, for instance, are working hard to develop a digital currency framework that will protect customers while still allowing innovation. Meanwhile, Bitcoin regulation might bring stability to the market and ultimately attract institutional investors.
Conclusion
Following the 2023 Silicon Valley Bank collapse and other financial institutions, vulnerabilities in the banking systems have been clearly exposed. This has revived interest in decentralized assets like Bitcoin. However, note that while Bitcoin has the potential to replace traditional finance, it faces several challenges, especially market volatility, government endorsement, and institutional trust.
FAQ
What are the forecasts for the future of crypto coins? Should I Invest in Bitcoin, or should I wait?
Is it possible to get a loan from a lender by offering my Bitcoin account as collateral? How does my creditworthiness as a depositor impact the particular details of the loan agreement?
