Bitcoin Observers Compare Silicon Valley Bank Crisis to Cyprus Moment

Mar. 13, 2023
Bitcoin Observers Compare Silicon Valley Bank Crisis to Cyprus Moment

Observers claim that the Fed’s relentless rate hikes and balance sheet reduction have caused a historic bank failure, serving as a live advertisement for Bitcoin self-custody. According to cryptocurrency specialists, the demise of Silicon Valley Bank (SVB) may benefit bitcoin (BTC).

They have drawn comparisons to the 2013 Cyprus financial crisis, which exposed weaknesses in the fractional reserve system and highlighted BTC’s decentralized and censorship-resistant nature as a means of safeguarding against centralized banking.

Silicon Valley Bank, ranked 18th in the US, collapsed yesterday, highlighting the impact of last year’s stock market downturn. Banking industry loses billions due to unrealized losses on Treasury bonds, exposing the flaw of fractional reserve system without depositors.

Furthermore, the Bitcoin Layer newsletter featured statements by analysts Joe Consorti and Nik Bhatia on this issue. Bhatia and Consorti highlighted that a bank failure resulted from the Fed’s rate hikes and balance sheet reduction, promoting self-custody of Bitcoin.

SVB faced a crisis last week due to a share sale and loss on US treasury portfolio sale.As a result of the Fed’s decision to raise interest rates to curb inflation, there was a subsequent decrease in Treasury note prices. Additionally, this action triggered a bank run by SVB depositors.

Furthermore, as of Wednesday, depositors had requested $42 billion in withdrawals, which accounts for approximately a quarter of the total deposit base of $173 billion. Banks’ fractional reserve system prompts bank runs, as they keep a portion of deposits for withdrawals and loan out the remainder.

However, the system assumes withdrawals won’t cross the pain threshold. Lowered customer confidence leads to liquidity shortages and exits, rendering the assumption void.

Regulators seized money after bank runs in the Cyprus crisis of 2013. Cyprus imposed a deposit tax to raise $7.5 billion, while Germany gave $13 billion.

Bitcoin Appeal Increases During Banking Crises

SVB shut down, and US officials seized deposits. Biden admin promised access to funds from Monday, causing panic in the banking industry. Signature Bank in NY failed.

SVB case shows the vulnerability of consumer cash in regulated banks. Bitcoin’s decentralized and seizure-resistant nature offers self-custody of money through peer-to-peer networks.

In his Seeking Alpha article, “Blockchain Reaction,” author Mike Fay draws investor lessons from SVB, Silvergate, and the 2013 Cyprus crisis. Fay cautions that history repeats itself, saying, “Not your keys, not your coins.

Investors buy assets outside the West despite banking safety concerns. Fay cautions that banks can make bad decisions and bets.

Bitcoin surged in March 2013, rising by 178% to $93, and peaking at $265 in May, coinciding with the Cyprus banking crisis. Euro and Russian rouble holders reportedly turned to bitcoin after bank closures in Cyprus.

Related Reading | Coinbase Halts USDC To USD Conversions Amid Crypto Turmoil Caused By Banking Crisis

Cumberland tweeted, a crypto trading giant that the bank run in Cyprus ten years ago triggered the largest-ever rally in BTC, which rose from $45 to $260 within a month.


Rida Fatima

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An ardent wordsmith with a rich five-year background in delving into the realms of finance and cryptocurrencies. Alongside curating captivating blogs, Unique's talents extend to crafting imaginative and engaging content.