Bitcoin Soars to $22,000 As the Biden Administration Struggles to Prevent Financial System Contagion
The price of Bitcoin (BTC) is increasing as the Biden Administration hurries to avoid the failure of Silicon Valley Bank from igniting a mass flight of U.S. regional banks.
According to the Washington Post, the U.S. Treasury Department is convening emergency meetings to evaluate whether it should guarantee that all SVB depositors would be compensated for their losses.
The news source claims sources familiar with the topic who discuss internal discussions at the Treasury Department, Federal Reserve, and FDIC.
Federal officials are seriously contemplating protecting all uninsured savings at Silicon Valley Bank, weighing an unusual action to avoid what they think would be a financial panic in the United States.
Coinciding with the sudden, widespread knowledge that American bank accounts, even business accounts, are only insured up to $250,000 by the FDIC was a dramatic decline in the price of Bitcoin.
Bitcoin has risen 8.7% from its 24-hour low of $20,334 to its 24-hour high of $22,111. Satoshi Nakamoto, the pseudonymous developer of Bitcoin, invented the first digital money as a reaction to an alternative to current banking.
Bitcoin was conceived after the 2008 financial crisis, the last time American banks and financial institutions collapsed at the cost of average individuals.
When he created the first cryptocurrency, Nakamoto wanted to build a monetary system with a naturally limited supply and a transparent, verifiable mechanism of processing and confirming transactions without needing a bank or intermediary.
Bitcoin’s creator touted cryptocurrency as a remedy for the current financial system. “Traditional currencies have trust issues because of how much faith they need to function. The central bank must be trusted not to devalue the currency, yet the history of fiat currencies is replete with instances when this trust was violated. The banks must be trusted to keep and electronically transmit our funds, yet they lend it out in waves of credit bubbles with little reserve. We must entrust them with our privacy and believe they will not allow identity thieves to empty our bank accounts. Their enormous administrative expenses make micropayments impractical…
With e-currency based on cryptographic evidence, there is no need to rely on a third party as a mediator; therefore, money is safe, and transactions are simple.
With the demise of the crypto-friendly bank Silvergate, the crypto sector is facing its banking system challenges. This bank decided to shut its doors due to regulatory constraints and “recent industry changes.”
The suspension of Silvergate triggered last week’s decline in the crypto markets, while the collapse of Silicon Valley Bank had direct effects on the sector as well.
Circle, the startup behind the stablecoin USDC, said that Silicon Valley Bank has $3 billion of its $40 billion in reserves. The announcement caused a crash in the price of USDC, which fell to as low as $0.84 before recovering to $0.95 at the time of publication. The company claims to pay the difference using its resources and internal cash.
Changpeng Zhao, CEO of the world’s biggest crypto exchange by trading volume, cautions that any stablecoin tethered to the banking sector may have similar issues in the future.