The banking system in the United States is in trouble as more than 2,300 financial institutions may have more liabilities than assets, a recent analysis finds reveals. Subsequently, analysts say this could raise Bitcoin prices in the coming weeks and months if the government does not proceed with caution.
US banks are burning through capital buffers
The U.S. Treasury Department and Federal Reserve say the problems are specific to individual banks, but experts warn the situation is far worse than the government is admitting.
With anti-inflation measures in place, nearly half of America’s 4,800 banks are burning through their capital buffers, and more tightening come from the Fed.
The full effect of the Fed’s monetary tightening has yet to hit the economy, and only then would experts know if the US financial system will be able to safely deflate the excess leverage caused by extreme monetary stimulus during the pandemic between 2020 and 2021 .
The White House did not provide a blanket guarantee on all deposits, because that would look like Social Security for the wealthy. Besides, the Federal Deposit Insurance Corporation (FDIC) reportedly only has $127 billion in assets and may need its own bailout.
That’s why financial institutions are now pressurize the United States Securities and Exchange Commission to crack down on short-selling strategies that profit when bank stocks slide.
Lindsey Johnson, CEO of the Consumer Bankers Association, urged policymakers to take a serious look at the financial havoc that short sellers are wreaking.
Bank failures can raise the price of Bitcoin
The unrest in the banking sector worries the Biden administration. If thousands of banks in the United States went bankrupt, some investors may turn to Bitcoin as a way to do it to protect their ability.
With the Biden administration’s stance on cryptocurrencies, any action that jeopardizes the banking system could push Bitcoin prices higher, even above $40,000.
The SEC is currently not taking into consideration any ban on short-selling bank stocks, according to a senior agency official.
In 2008, the SEC declared a timeout for short selling on nearly 1,000 financial stocks in an effort to restore confidence in the public markets. However, the New York Fed later found that the ban did little to halt the spiraling financial stock market.
Another study found that most of the stocks protected by the ban lost public confidence and suffered “a serious deterioration” in market quality, price impact and volatility.
While financial institutions are pressuring the SEC to take action against short sellers and their role in the market, eroding Americans’ confidence in the financial system. Still, careless moves to pull the pin could create more gaps, potentially boosting crypto and bitcoin prices.
Feature image from Canva, chart from TradingView