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The United States banking system is in trouble as more than 2,300 financial institutions may have more liabilities than assets, a recent analysis shows. Subsequently, analysts say that this could lead to higher prices for bitcoin in the coming weeks and months if the government does not act cautiously.
US banks are burning capital reserves
The US Treasury and the Federal Reserve say the problems are unique to individual banks, but experts warn that the situation is much worse than the government admits.
Thanks to anti-inflationary measures, almost half of America’s 4,800 banks are draining their capital reserves, and the Fed expects even more tightening.
The full effect of the Fed’s monetary tightening has yet to hit the economy, and only then will experts know if the United States financial system can safely reduce excess leverage caused by extreme monetary easing during the pandemic between 2020 and 2021.
The White House did not offer a full guarantee on all deposits because it would look like social security for the rich. In addition, the Federal Deposit Insurance Corporation (FDIC) reportedly has only $127 billion in assets and may require bailouts of its own.
For this reason, financial institutions are now pressuring the US Securities and Exchange Commission to crack down on short-selling strategies that pay off when bank stocks fall.
Lindsey Johnson, CEO of the Consumer Bankers Association, urged policymakers to take a serious look at the financial chaos caused by short selling.
Bank failures can lead to an increase in the price of bitcoin
Banking turmoil worries the Biden administration. If thousands of banks in the United States fail, perhaps some investors will turn to Bitcoin as a way to protect their assets.
With the Biden administration’s stance on cryptocurrencies, any action that puts the banking system at risk could send the price of bitcoin up, even above $40,000.
Bitcoin Price May 7 | Source: BTCUSDT on Binance, TradingView
According to a senior agency official, the SEC is not currently considering any ban on short selling of banking stocks.
In 2008, the SEC issued a timeout for short selling nearly 1,000 financial stocks to restore confidence in the public markets. However, the Federal Reserve Bank of New York later found that the ban did little to stop a financial stock market that had spiraled out of control.
Another study found that most of the stocks protected by the ban lost public confidence, suffering from a “serious deterioration” in market quality, price impact and volatility.
As financial institutions require the SEC to take action against short sellers and their role in the market, this affects Americans’ confidence in the financial system. However, any careless moves to pull the pin could create new cracks, potentially pushing up the price of the cryptocurrency and bitcoin.
