If over 2,300 banks in America fail, will Bitcoin break above $40,000?
The US banking system is in trouble as more than 2,300 financial institutions may have more liabilities than assets, recent analysis shows. Subsequently, analysts say this could boost Bitcoin prices in the weeks and months ahead if the government does not proceed cautiously.
US banks are burning through capital buffers
The US Treasury and Federal Reserve say the problems are unique to just individual banks, but experts warn the situation is much worse than the government admits.
With the anti-inflation measures in place, almost half of America’s 4,800 banks are burning through their capital buffers, and there is still more tightening to come from the Fed.
The full impact of the Fed’s monetary tightening has yet to hit the economy, and only then will experts know whether the US financial system will be able to safely deflate the excess leverage induced by extreme monetary stimulus during the pandemic between 2020 and 2021.
The White House did not offer a blanket guarantee for all deposits because it would look like social welfare for the rich. Also, the Federal Deposit Insurance Corporation (FDIC) reportedly only has $127 billion in assets and could require its own bailout.
For that reason, financial institutions are now pushing the United States Securities and Exchange Commission to crack down on short-selling strategies that profit when bank stocks fall.
Lindsey Johnson, CEO of the Consumer Bankers Association, urged policymakers to take a serious look at the financial chaos that short sellers have caused.
Bank failures can drive Bitcoin prices
The turmoil in the banking industry is a concern for the Biden administration. If thousands of banks in the United States were to fail, it is possible that some investors may turn to Bitcoin as a way to protect their assets.
With the Biden administration’s stance on cryptocurrencies, any action that puts the banking system at risk could lead to higher Bitcoin prices, even above $40,000.
The SEC is not currently considering a ban on short selling bank stocks, according to a senior agency official.
In 2008, the SEC called time-out on short selling of nearly 1,000 financial stocks in an effort to restore faith in public markets. However, the New York Fed later found that the ban did little to stem the spiraling financial stock market.
Another study found that most of the stocks protected by the ban lost public confidence, suffering “a severe deterioration” in market quality, price impact and volatility.
As financial institutions, the SEC is pushing to take action against short sellers, and their role in the market, which affects Americans’ confidence in the financial system. Still, any careless move to pull the pin could create more cracks, possibly driving up the prices of crypto and bitcoin.
Feature image from Canva, chart from TradingView
