Similarities between this crisis and the 2013 Cyprus crisis that raised Bitcoin | coindesk JAPAN | Coindesk Japan

The collapse of Silicon Valley Bank (SVB) will benefit Bitcoin (BTC), say crypto insiders, highlighting the flaws in fractional reserve banking and using bit as a hedge against centralized banking systems. He noted similarities to the 2013 Cyprus crisis, which drew attention to coins.

“The 18th largest Silicon Valley bank in the United States has collapsed. We have yet another case of non-existence and only lenders,” researcher Nik Bhatia and market analyst Joe Consorti told the Newsletter. I wrote it in the latest edition of “The Bitcoin Layer”.

“The Fed’s aggressive interest rate hikes and balance sheet shrinkage have caused historic bank failures and made Bitcoin self-custody real-time advertising prevalent,” they wrote. .

Bank runs and fractional reserve banking

The crisis at Silicon Valley Bank surfaced early last week when the bank, which had lost money on its holdings of Treasuries and other assets, announced a stock sale to shore up its balance sheet. The Fed’s aggressive policy of raising interest rates to curb inflation has caused US Treasury prices to plummet over the past year.

After the announcement, depositors moved to withdraw funds, leading to a so-called “run on the bank”, with withdrawals reaching about $42 billion, about 25% of the $173 billion in deposits, on the 8th.

Bank runs arise because fractional reserve banking requires banks to keep only a portion of their deposits available for withdrawal. Other deposits are used for loans and other purposes to promote economic activity.

The system assumes that withdrawal demand will not exceed problematic levels. However, when customer trust in banks declines, as happened with Silicon Valley Bank, this premise collapses, withdrawals surge, and banks run out of liquidity.

In theory, the collapse of Silicon Valley Bank is highly bullish for #Bitcoin.

Bitcoin literally fixes the fractional reserve issue.

However, Bitcoin can barely rally 2% now.

This is because the real problem is liquidity.

Liquidity was already bad before SVB.

Now it’s gone.

—The Kobeissi Letter (@KobeissiLetter) March 12, 2023

In theory, the collapse of Silicon Valley Bank would be extremely bullish on Bitcoin.
Bitcoin literally fixes the problem of fractional reserve banking.
But Bitcoin is currently only up 2%.
The reason is that the real problem is liquidity.
Liquidity was already bad even before Silicon Valley Bank.
It’s gone now.

Lessons Repeated

When a bank run hits, regulators typically step in and keep deposits under control. During the 2013 Cyprus crisis, regulators actually took control of customer accounts and imposed a tax on all Cypriot deposits that were conditional on financial aid from the Eurozone.

In the case of Silicon Valley Bank, U.S. regulators controlled deposits and closed the bank on March 10. Over the weekend, the Biden administration announced that depositors at the bank will be able to access all their deposits starting the 13th. It was also announced that a crypto-friendly signature bank had also been shut down by regulators, a sign of panic spreading rapidly across the banking sector and the authorities’ determination to curb the spread of credit uncertainty. rice field.

The measures against the failure of Silicon Valley Bank are not as draconian as those during the Cyprus crisis. But these events highlight that customer funds in regulated banks are not as safe as we believe. And it validates the merits of Bitcoin, a decentralized, peer-to-peer network and the ability to avoid seizures through self-custody of funds.

“Not your keys, not your coins” has been repeated many times in history and is clearly a lesson to be learned over and over again. Investor and popular analyst Mike Fay discussed the lessons investors learned from the failures of Silicon Valley Bank and Silvergate Capital, as well as the 2013 Cyprus crisis.

“It is all too easy not to understand why some people feel compelled to settle in the Western world with the perception of safe and regulated banks and buy assets outside of it. It shows that banks can make bad bets and bad decisions.”

Bitcoin Soars in Cyprus Crisis

In March 2013, Bitcoin surged as the Cyprus banking crisis unfolded. Bitcoin surged 178% this month to $93, hitting an all-time high of $265 in May 2013. At the time, it was reported that Euro and Ruble holders diversified into Bitcoin following the suspension of banking operations in Cyprus.

“Ten years ago this week, there was a bank run in Cyprus that emptied ATMs and depleted safes. The event led to Bitcoin’s largest ever rise from $45 to $260 in a single month.” Cryptocurrency trading giant Cumberland tweeted earlier on the 13th.

Coincidentally, Bitcoin has surged more than 15% since the 10th, rising from a two-month low near $19,500 to $22,500, according to CoinDesk data.

“When traders are unsure of crypto prices, they take refuge in stablecoins and bank deposits. When are they unsure of stablecoins and bank deposits? have risen 14% and 15% respectively over the weekend amid widespread uncertainty in the banking sector,” said Cumberland.

“History doesn’t always repeat itself, but it often rhymes,” he continued.

｜Translation: coindesk JAPAN
｜Editing: Takayuki Masuda
| Image: Cyprus went on strike against the government that led to the crisis (Shutterstock)
｜Original: Silicon Valley Bank Crisis a ‘Cyprus Moment’ for Bitcoin: Crypto Observers