The United States banking system appears to be shaking as the coronavirus pandemic rages on. In mid-March 2020, just as the pandemic was starting to cause widespread panic in the United States, banks saw a significant drop in deposits. Deposits at all U.S. commercial banks fell by $98 billion between March 8 and March 15, according to data from the Federal Reserve. However, deposits at the top 25 banks rose by $67 billion during this period. This suggests that customers moved their funds from smaller, regional banks to larger banks considered too big to fail, signaling fear of a banking collapse.
The situation highlights the concern that the government may not aid the smaller banks, particularly if they are not regarded as systemically important. Gemini co-founder Tyler Winklevoss has compared the U.S. banking system to a modern caste system, where people banking with top banks are protected while the rest are exposed to risk.
Meanwhile, attempts by the government and major banks to calm nerves have not wholly eased anxiety about a potential crisis in the banking system. Several users are still moving funds out of smaller banks, leading these banks to borrow at alarming rates to prevent bank runs.
Borrowing by small U.S. banks reached the highest rate since the turn of the century, according to a report by CNN. The report said the banks borrowed $669.6 billion in one week. However, analysts believe that this is just an effort by the banks to prepare for any bank run and does not necessarily signal a current problem.
Despite all this, Bitcoin has seen a recent rally, with prices increasing by 35% over the last two weeks. According to Markus Thielin, head of research and strategy at Matrixport, “Americans are buying Bitcoin with both hands.” He notes that 47% of the purchases that fueled BTC’s price increase came from U.S. institutional players.
During times of distress, investors often exit devaluing currencies, and the U.S. dollar currently falls into that category. Balaji Srinivasan, Coinbase former CTO, has predicted that as investors turn away from the U.S. dollar, Bitcoin (BTC) will replace it as the global reserve currency.
Some BTC bulls have predicted an imminent collapse of the banking system and the possibility of the flagship asset rallying to $1 million. Despite this optimism, many analysts remain cautious, noting that Bitcoin has been very volatile recently and trade at its own risk.
The current situation in the United States banking system is a cause for concern. However, it is also an opportunity for investors to protect their assets by embracing cryptocurrencies such as Bitcoin.