How Bitcoin can emerge victorious in the midst of a global banking crisis

As the world grapples with a banking crisis on the brink of chaos, the Federal Reserve (Fed) has taken drastic measures to pump liquidity into the market. The initiative has led to an unexpected response from the crypto market, especially Bitcoin.

Amid rising interest rates and a series of bank bailouts, the Fed’s balancing act between tightening and loosening monetary policy has many investors questioning the safety of their assets.

The banking crisis becomes global

In the US, several banks, including Silvergate, Silicon Valley Bank, Signature Bank and First Republic Bank, have come under enormous stress, requiring intervention by the government or the private market. But the crisis has not been limited to the United States.

European banks such as Credit Suisse and Deutsche Bank are also struggling to stay afloat.

Governments and central banks around the world have stepped in to mitigate the crisis in order to provide liquidity.

The Federal Reserve, the FDIC and other organizations have thrown “monetary bazookas” at the beleaguered banks of the United States. The move has seen the Fed’s balance sheet swell by $400 billion in just two weeks.

This rapid increase has effectively negated 64% of the progress in quantitative easing over the past year.

However, the market remains uncertain about the Fed’s strategy. While interest rates have continued to rise, the massive infusion of liquidity has confused the market.

Torsten Slok, partner and chief economist at Apollo, maintains that the spread between Fed Funds and checking account interest “is the fundamental reason money is moved out of bank deposits.” Slok believes that this increasing divergence is “highly unusual compared to past banking crises, where the source of instability has typically been credit losses.”

Bitcoin thrives amid psychological awakening

As a result of this uncertainty, many investors have turned to alternatives such as Bitcoin, gold and real estate. The growing concerns about the security of traditional banking have led to a “psychological awakening” in the Bitcoin community.

This, combined with the desire for higher returns, has led to an influx of funds into money market funds and other non-deposit assets, putting further stress on the banking system.

Economist Nouriel Roubini confirms that depositors have begun to realize “they can earn 4% on safe short-term T-bills while getting close to 0% on bank deposits.” This acts as a primary driver for ongoing bank runs. The era of banks benefiting from free deposits is coming to an end, according to “Dr. Makeabout.”

Roubini concluded that the response of deposits to changes in interest rates becomes significantly more intense.

Despite the dire situation, experts believe the banking crisis will eventually be resolved, with governments and central banks working tirelessly to prevent bank failures both in the US and internationally.

Speaking at a press conference following the announcement of a 0.5 percentage point increase in deposit rates, the president of the European Central Bank, Christine Lagarde, said:

“Below the baseline, the economy looks set to recover over the coming quarters. Industrial production should pick up as supply conditions improve further, confidence continues to recover, and companies work on large backlogs. Rising wages and falling energy prices will partially offset the loss of purchasing power experienced by many households as a result of high inflation, which in turn will support consumer spending.”

Nevertheless, efforts to stabilize the system will probably lead to other inflationary pressures and further increases in food prices.

Meanwhile, investors are increasingly diversifying their portfolios and putting their trust in alternatives like Bitcoin. More than 4.28 million Bitcoin wallets have been created on the network, with a balance of 0.1 BTC or more.

As the world continues to navigate this financial minefield, it’s clear that a younger generation is more inclined to trust software-driven solutions over human-driven systems.

Investors must monitor the central bank’s reactions closely. Likewise, developments in Europe and other affected regions may shed light as the global banking crisis unfolds.

The ongoing trend of a debt-based economy and a shared reserve banking system suggests that alternative assets such as Bitcoin may emerge as the biggest winners in the long term.