Silicon Valley Bank collapse a turning point for bitcoin
The collapse of Silicon Valley Bank (SVB) has crypto observers highlighting Bitcoin's decentralized, censorship-resistant properties as a hedge against centralized banking. The crisis exposes flaws in the fractional reserve system and raises questions about the security of customer funds in regulated banks, reinforcing Bitcoin's attractiveness as a seizure-resistant cryptocurrency that enables self-custody. The incident also draws parallels with the 2013 Cyprus banking crisis, during which Bitcoin (BTC) experienced a significant surge in value.
- March 15, 2023
- 2 minutes of reading.
A Turning Point for Bitcoin (BTC)
According to crypto observers, the collapse of Silicon Valley Bank (SVB) could be a turning point for bitcoin (BTC) and cryptocurrencies, as it highlights flaws in the fractional reserve system and emphasizes BTC’s decentralized, censorship-resistant properties as a hedge against centralized banking. In the latest edition of The Bitcoin Layer newsletter, researcher Nik Bhatia and market analyst Joe Consorti stated that the collapse of SVB, the 18th largest bank in the US, is a result of last year’s record sell-off in US Treasuries, which has caused billions of dollars worth of unrealized losses within the banking sector. (Read also: Banking Panic: Bitcoin (BTC) surges over 18% in 24 hours.)
Fractional Reserve Banking and the SVB Crisis
The SVB crisis began last week when the bank sold off a portfolio mainly consisting of U.S. Treasury bonds at a loss and announced a share sale to bolster its balance sheet. This led to a traditional bank run as SVB depositors hurried to withdraw their funds, with total deposit withdrawals reaching $42 billion on Wednesday, which is almost 25% of the bank’s total deposit base of $173 billion.
Regulatory Interventions and the Cyprus Banking Crisis
Regulators typically intervene after bank runs to take control of deposits and stabilize the situation. In the case of the 2013 Cyprus banking crisis, regulators resorted to seizing customer accounts as a means of addressing the situation. In the case of SVB, regulators in the US assumed control of the deposits and closed the bank on Friday.
The Allure of Decentralized Assets
The incident highlights the fact that customers’ funds are not as secure in regulated banks as we have been led to believe. This point reinforces bitcoin’s attractiveness as a decentralized, peer-to-peer network and seizure-resistant cryptocurrency that facilitates self-custody of funds.
Historical Context: Bitcoin’s Surge During the Cyprus Crisis
During the March 2013 Cyprus banking crisis, Bitcoin experienced a significant surge. The cryptocurrency rallied 178% to $93 that month and reached a record high of $265 in May 2013. Fast forward ten years, and crypto trading giant Cumberland tweeted that this event triggered the largest-ever rally (in percentage terms) in BTC, rallying from $45 to $260 in a month.
Bitcoin and Cryptocurrencies Shine Amidst Banking Sector Uncertainty
Coincidentally, Bitcoin has risen over 15% since Friday, rising from two-month lows near $19,500 to $24,500. “When traders are unsure about crypto prices, they flee to stablecoins and bank deposits. When they are unsure about stables and bank deposits? It’s crypto’s time to shine, and BTC and ETH rallied 14 and 15%, respectively, over the weekend amidst uncertainty in the banking sector.
In conclusion, the recent SVB crisis has exposed the vulnerabilities of traditional banking systems, strengthening the case for decentralized cryptocurrencies like Bitcoin. As investors seek alternatives to protect their assets, the demand for censorship-resistant and self-custody options like BTC is likely to grow, marking a potential turning point for the crypto industry.
