It's been a tumultuous year for the financial sector, as macroeconomic headwinds caused the 16th-largest bank in the U.S. to shut its doors in March. An unforeseen upside is happening as decentralized cryptocurrencies make a stellar comeback after a brutal crypto winter last year.
Despite recessionary risks, people have been investing in riskier alternative assets such as cryptocurrencies as the global banking system appears to be on the brink of collapse. After the historic Silicon Valley Bank bank run, UBS Group announced it would take over Credit Suisse, Switzerland's second-largest bank. About 186 U.S. banks are at risk of collapsing, but the Federal Reserve has been working in tandem with the U.S. government to restore stability in the banking sector.
As distressed banks are being occupied by multinational financial institutions, investors are shifting toward decentralized finance (DeFi) assets, which appear to be more attractive despite persistent recessionary warnings. Gameflip, for example, is currently raising on StartEngine, a site allowing retail investors to invest in startups. Gameflip has already seen significant traction from retail investors for it's 7-figure raise and seen record volume on it's site of over $160 million.
First Republic Bank Acquisition And Bitcoin's Historic Daily Transactions Processed
First Republic Bank's brokered acquisition by Fortune 500 banking institution JPMorgan Chase & Co. failed to ease market fears regarding the fragile state of the banking sector. First Republic Bank's six-week-long turmoil and eventual collapse marks the second-largest bank failure in U.S. history. Three out of the five largest bank collapses in U.S. history occurred in 2023, and many economists warn of more pain ahead following the acquisition of the distressed bank on May 1.
The crypto sector has benefitted from the banking instability, with Bitcoin registering the highest number of daily transactions in 14 years on April 30. Approximately 568,300 Bitcoin transactions were processed on this historic day, about 78,000 higher than the previous record set back during the crypto rally of 2017. What is surprising is the timing of this milestone, as it coincided with the U.S. government quietly engineering a bank buyout.
The world's largest cryptocurrency is up more than 73% year to date, making it one of the best-performing assets so far in 2023.
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Traditional Banking Vs. DeFi
While traditional banks seem to be in shambles, crypto is climbing once again. This juxtaposition of events raises important questions about the future of money and the role of government in financial systems.
Bitcoin, as a decentralized and open-source cryptocurrency, has been touted as a solution to the problems of centralized banking and government control. Its blockchain technology allows for secure and transparent transactions without the need for intermediaries like banks or government regulators.
The U.S. government’s intervention in the banking system raises questions about the role of government in maintaining financial stability and protecting consumers from the risks of a failing bank.
The fact that Bitcoin set a new transaction record on the same day as the bank buyout highlights the potential for cryptocurrencies to disrupt traditional financial systems.
The US Watchdog's Take
The U.S. Securities and Exchange Commission (SEC) has remained surprisingly quiet when it comes to establishing an outline to define and regulate alternative digital assets. Regardless, the securities market watchdog has maintained a tough stance on crypto trading platforms.
Popular cryptocurrency exchange platform Coinbase Global filed a petition with the U.S. Court of Appeals for the Third Circuit regarding setting minimum regulator guidance for U.S.-based crypto companies. Coinbase filed a petition last year with the SEC to create a baseline regulator standard, stating "a minimum must set forth how those inapt and inapposite requirements are to be adapted to digital assets."
The Future Remains Uncertain
While a formal regulatory framework regarding the cryptocurrency sector will likely take some time, decentralized assets are still poised to continue their current upward trajectory. In addition, as the Fed is set to phase out its aggressively hawkish monetary policy by the end of this year, the popularity of riskier crypto assets will take off once again.
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