How would the collapse of 3 major banks in US impact crypto market? (2024)

FAQs

How would the collapse of 3 major banks in US impact crypto market? ›

In the long run, the shutdown of the crypto banking trifecta could present problems for bitcoin , the world's largest cryptocurrency, with a market value of $422 billion. The Silvergate Exchange Network (SEN) and Signature's Signet were real-time payment platforms that crypto customers considered core offerings.

A banking system failure could potentially drive up crypto prices in such a scenario in the long term. This is because cryptocurrencies have already established themselves as an alternative and widely accepted store of value and safe haven.

The two industries might work together in the future. Blockchain technology might be incorporated by banks to provide quicker and more effective services. Companies that deal in cryptocurrencies and banks might collaborate to offer custodial services and guarantee legal compliance.

The banks of greatest concern are Flagstar Bank and Zion Bancorporation, according to the screener. Flagstar Bank reported $113 billion in assets with a total CRE of $51 billion. The bank, however, only had $9.3 billion in total equity, making its total CRE exposure 553% of its total equity.

When SVB collapsed, crypto market faced a blow after one of the largest operators of USDC, Circle announced that it had $3.3 billion of reserves backing the token which was stored with the bank. Other major crypto companies such as Coinbase Global Inc. and Paxos Inc. are reportedly exposed to these failed US banks.

“As the banking sector becomes more centralized, we believe this will create even more demand for decentralized crypto assets.” The Globe 3 Capital executive noted that crypto can become a “flight-to-safety” asset in uncertain times. Bitcoin's price rose roughly 50% in the weeks following the March 2023 bank collapses.

The collapses of Silicon Valley Bank and Signature Bank in March 2023—then the second- and third-largest bank failures in U.S. history—took consumers by surprise. Subsequently, three more banks failed in 2023: First Republic Bank in May, Heartland Tri-State Bank in July and Citizens Bank of Sac City in November.

RBI continues to classify SBI, ICICI Bank and HDFC Bank in the category of D-SIBs. But, what are D-SIBs? These are the banks which are so important for the country's economy that the government cannot afford their collapse. Hence, D-SIBs are thought of as “Too Big to Fail” (TBTF) organisations.

Companies Considered Too Big to Fail

Bank of America Corp. The Bank of New York Mellon Corp. Citigroup Inc. The Goldman Sachs Group Inc.

The Federal Deposit Insurance Corporation (FDIC) guarantees deposits on accounts up to $250,000. If you've got less than that in the bank, you're covered by the $128 billion Deposit Insurance Fund, which is part of a program that has been around for nearly 90 years.

What are the after effects of SVB collapse? ›

One of the most immediate effects of the collapse of SVB is the disruption of the financial services that the bank provides to its clients. Many of the world's leading technology companies relied on SVB for essential financial services such as lending, cash management, and investment banking.

Who is affected by the collapse? SVB stockholders and investors took a big hit because, unlike customers, they were not backed by FDIC on their investment. Other issues include a lack of money from deposits for immediate expenses such as payroll.

“If it's a recession driven by a worsening of the banking crisis, it could end up a boon, as crypto is increasingly being seen as a viable alternative to legacy financial systems,” he said. Rosenblum warned that projects would need to focus more on public sales over private deals, as institutional demand may dry up.

Bitcoin's technology relies on algorithmic trust, and its decentralized system offers an alternative to the current system. However, because of the issues it raises and faces, it is unlikely that it will replace central banks anytime soon.

Nolan Bauerle, research director at CoinDesk, says 90% of cryptocurrencies today will not survive a crash in the markets. Those that survive will dominate the game and boost returns for early investors.

Why Banks are Cautious of Cryptocurrencies. According to a study conducted by the Association of Certified Anti-Money Laundering Specialists (ACAMS) and the U.K.'s Royal United Services Institute, nearly 63% of respondents who work in the banking industry perceive cryptocurrency as a risk rather than an opportunity.