Last Updated: 27 March 2023
The US banking system is facing a crisis as customers move their funds from regional banks to larger banks, indicating fears of a banking collapse. Deposits at all US commercial banks fell by $98 billion between March 8 and March 15, according to data from the Federal Reserve. Meanwhile, borrowing by small US banks reached an all-time high as the banks try to prevent bank runs. This has resulted in a surge in Bitcoin investment, with the cryptocurrency rising by 35% over the past two weeks.
Deposits at US Banks Drop
The recent drop in banking deposits in the US has sparked fears of a potential banking collapse. Data from the Federal Reserve shows that deposits at all US commercial banks fell by $98 billion in just one week. However, deposits rose by $67 billion for the top 25 banks in the country, indicating that customers are moving their funds from regional banks to banks considered “too big to fail.” This behavior highlights the concern that the government might not aid smaller banks, especially if they are not considered systemically important.
Smaller Banks Borrowing at Unprecedented Rates
The drop in deposits has led to smaller US banks borrowing at an alarming rate to prevent bank runs. CNN reported that borrowing by small US banks reached its highest rate since the turn of the century, with banks borrowing $669.6 billion this week. However, analysts believe that this is just an effort by the banks to prepare for any potential bank run and does not necessarily signal a current problem.
US Investors Turn to Bitcoin
The recent crisis in the US banking system has resulted in a surge in Bitcoin investment. According to Matrixport’s head of research and strategy, Markus Thielin, “Americans are buying Bitcoin with both hands.” 47% of the purchases that fueled Bitcoin’s recent price increase came from US institutional players.
Bitcoin as a Global Reserve Currency
Coinbase’s former CTO, Balaji Srinivasan, predicts that Bitcoin will replace the US dollar as the global reserve currency. Srinivasan believes that investors usually exit devaluing currencies during times of distress, and the US dollar is currently facing devaluation. Bitcoin has already rallied by 35% in the past two weeks, and some BTC bulls predict that the cryptocurrency could reach $1 million.
The recent drop in US banking deposits and the surge in Bitcoin investment highlight the ongoing concerns about the stability of the global financial system. While it remains to be seen whether Bitcoin will become the global reserve currency, it is clear that investors are turning to the cryptocurrency in times of uncertainty.
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