The Federal Reserve made an extraordinary injection of cash into the market during that time to boost a flagging economy. Yet before that, the cryptocurrency had a quick decline that closely followed the trends of the stock market. In just a few hours, Bitcoin fell from $8,000 to $3,750.
While markets recovered, it was the “loaded” retail and novice players who bought meme and cryptocurrency stocks. The asset class eventually reached new heights in 2021. Although extreme blow-off peaks and drawdowns of over 80% are not uncommon, the most recent bull run was able to captivate investors, both large and little, unlike any other.
Numerous public firms have made large investments in cryptocurrencies. Overall, the year in space broke records. Even though the majority of those benefits have been lost, the current developments in the banking industry serve as a stark reminder of how the situation has changed.
Banks and the financial system collapsed
The now-defunct Silicon Valley Bank (SVB) was included in Forbes magazine’s yearly list of the top American banks. Not once, not twice, but five years running. Also, it was listed on the first Financial All-Stars list. But shortly after that, everything collapsed. As a result of the bank’s inability to accommodate depositor withdrawal requests, the regulators assumed control of the institution. It is important to note that SVB, which had been in business for 40 years, ranked as the 16th-largest lender in the US with assets of around $200 billion. It was recognized as a trustworthy source of money for venture capital firms and digital businesses.
The day SVB declared measures to improve its balance sheet was also the day Silvergate collapsed, although its financial situation had been worse over several years. The latter made the same errors as SVB, which alarmed the startups who banked with the major.
The closing has caused foreign banks’ stocks to fall. The sudden demise of SVB Financial Group and the other firms shows how seriously the financial system is at risk. Regulators need to provide some justification.
Centralization’s Fragility Around 2023
The US Treasury Department and the Federal Deposit Insurance Corporation (FDIC) began denouncing the cryptocurrency sector as a danger to the nation’s financial system.
Nevertheless, they overlooked a much more pressing problem that results from these residual institutions. The dramatic bankruptcy of Silicon Valley Bank, for instance, which has had a negligibly sized presence in the cryptocurrency market, demonstrates that regulators’ obsession with demonizing cryptocurrencies may not be the best course of action.
This raises the question, is fiat really that weak? Did the traditional financial system’s structure plant the seeds of instability? On that, the verdict is still out.
The debate over the “practicalities of decentralization” has never been more heated, albeit it’s too soon to judge whether the rot will spread to other banks as well. And crypto is still around three years after the COVID crash. It has grown more than ever.