Cryptocurrencies Act as Safe Haven Amid U.S. Banking Crisis
Amid the ongoing banking crisis in the United States, cryptocurrencies have emerged as a safe haven, according to Cathie Wood, CEO of asset management firm ARK Invest. Wood criticized the Federal Reserve's inability to prevent bank runs and blamed their policy failure for the current crisis, which has led to the downfall of banks such as Silicon Valley Bank (SVB) and Signature.
In a Twitter thread on March 16, Wood pointed towards the asset-to-liability mismatch, which is typical for banks but was untenable in the current scenario. Deposits were leaving the banking system for the first time since the 1930s, and securities earnings for banks were only 1-2% against deposits paying 3-5%, which eventually became untenable as deposits started leaving the system. Some banks were forced to sell held-to-maturity securities, recognizing losses that depleted their equity accounts.
Wood argued that the ongoing crisis wasn't forced by cryptocurrency, as the ecosystem has been under heavy scrutiny since FTX's downfall, leading to a severe regulatory crackdown. She said that regulators are using crypto as a scapegoat for their own lapses in oversight of traditional banking.
Wood has long been a known crypto proponent, often reflected in her company's investment in emerging markets - especially crypto. She projected crypto as a solution to the central points of failure, the opacity, and the regulatory mistakes in the traditional financial system. As the scapegoat for policy mistakes, crypto will move offshore, depriving the U.S. of one of the most important innovations in history.
The current banking crisis would not have been possible in the decentralized, transparent, auditable, and overcollateralized crypto asset ecosystem, according to Wood. Cryptocurrencies have shown themselves to be a safe haven amid the U.S. banking crisis, with Bitcoin and Ether touching new multimonth highs. As traditional banking continues to struggle, it's clear that cryptocurrencies will play an increasingly important role in the financial landscape of the future.