On Wednesday, the share prices of the 10 largest US banks by market capitalization fell at least 1 percentage point.
Cryptocurrencies could be enjoying a rise in price and adoption, as the latest report from Federal Deposit Insurance Corp. showed around half a trillion dollars in deposits withdrawn from US banks during the first three months of 2023, which caused the stock to plummet.
The investigation appeared to reignite concerns about the failures of Silicon Valley Bank, Signature Bank and First Republic, which were precipitated in large part by aggressive interest rate hikes implemented by the US Federal Reserve. On Wednesday, prices of shares of the 10 largest US banks by market capitalization fell at least 1 percentage point.
Unprecedented $472 Billion Bank Accounts Withdrawn
During Q1 2023, depositors withdrew a record $472 billion, the fourth straight quarter of declining deposit totals, and the highest quarterly withdrawal total since the FDIC began tracking statistics in 1984.
Silicon Valley Bank (SVB) was a savior of the crypto industry with over $200 billion in assets. It was noted for being one of the few US-based financial institutions serving cryptocurrency businesses.
Signature Bank’s Signet payment system enabled constant and instant crypto-to-crypto transfers for businesses. Signet is an essential component of the operation of many major exchanges, including Coinbase.
Financial filings and other records demonstrated that First Republic’s exposure to cryptocurrencies was negligible at best.
Stocks Drop Amid Retreats
The FDIC claims that the “primary driver” of the deposit flight was the one to the safety of accounts above the $250,000 level guaranteed by the insurer. As people diversified their holdings during the quarter, the total amount of insured deposits held by banks increased.
The S&P 500 banking index fell 2.6% after the report was released, hitting its lowest position in nearly two weeks, and on track for its biggest one-day percentage decline since early May. Comerica, Keycorp, and Citizens Financial posted the most percentage drops.
Even as the industry is “resilient,” FDIC Chairman Martin Gruenberg said the full impact of the turmoil might not be visible until the agency releases its second-quarter results. Gruenberg added that inflation, rising rates, as well as economic pressure, continue to pose threats to the industry, especially in areas like commercial real estate.
How Cryptocurrencies Benefit from Massive Bank Withdrawals
Large-scale bank withdrawals in the US can help cryptocurrencies in different ways. For starters, some of the money withdrawn may be put into digital assets like Bitcoin, which could increase demand for these currencies. This increase in interest can cause the value of cryptocurrencies to increase.
Second, the diversification of the financial system fostered by the flow of funds into cryptocurrencies reduces the need for central banks. Financial transactions are more private, secure, and under your control with this decentralization. By obviating the need for intermediaries, it also has the potential to reduce transaction costs and shorten settlement times.
In general, large-scale withdrawals from US financial institutions can boost the visibility, popular acceptance, and development of cryptocurrencies. However, the actual effect will depend on a number of variables, such as the number of withdrawals, the market mood, the regulatory climate, and the state of the cryptocurrency market as a whole.
By Audy Castaneda