The U.S. banking system remains mired in crisis as the Federal Reserve injects more money to salvage struggling banks. This ongoing financial turmoil is believed to be a significant driving force behind the intensifying war on cryptocurrencies. With the Federal Reserve’s emergency bank loan facility surpassing $100 billion in usage, it is evident that the banking crisis is far from over. This article examines the recent developments in the U.S. banking sector and explores the underlying reasons for the escalating crackdown on cryptocurrencies.
Continued Banking Crisis:
In March 2023, the Bank Term Funding Program (BTFP) was introduced to provide additional funding to eligible depository institutions. The program aimed to bolster the banks’ ability to meet their depositors’ needs and essentially acted as a banking bailout. However, market analyst Joe Consorti points out that distressed banks are utilizing the fund to artificially boost the value of their assets, without other banks being aware of their financial distress. This temporary solution serves as a band-aid for the banking system, but it conceals the inherent risks that are spreading within the industry.
Federal Reserve’s Growing Involvement:
The Wall Street Journal’s chief economics correspondent, Nick Timiraos, notes that the Federal Reserve’s lending to banks through the BTFP has reached record levels, marking a continuous increase for five consecutive weeks. Moreover, the emergency lending for small banks has surpassed expectations, with the BTFP exceeding the initially stated limit of $25 billion and now standing at over $100 billion. These statistics highlight the magnitude of the banking crisis and the urgent need to stabilize financial institutions.
The Link Between Banking Crisis and Crypto Crackdown:
The relentless efforts by the U.S. government to prop up its struggling banking system have raised questions about the motive behind the intensifying crackdown on cryptocurrencies. Large banks have already collapsed this year, fueling fears of a repeat of the 2008 financial crisis. As history shows, Bitcoin emerged as a response to the flaws exposed during the previous crisis, including fractional reserves and toxic loans. Consequently, cryptocurrencies pose a significant threat to the traditional banking system, which could explain the vehement opposition they face.
Recent incidents further substantiate this theory, as Binance.US, a prominent cryptocurrency exchange, lost its banking partners and was forced to suspend USD deposits. The influence of big banks and Wall Street on federal regulators cannot be overlooked, and their desire to maintain control over the financial sector could be a motivating factor behind the war on cryptocurrencies. The profitability of banks is directly threatened by the rise of crypto, making it the most significant challenge they have ever encountered.
The ongoing banking crisis in the United States, characterized by the Federal Reserve’s substantial injection of funds into troubled financial institutions, has contributed to the escalating crackdown on cryptocurrencies. The banking system’s fragility and the fear of another major crisis have driven regulators to clamp down on the disruptive potential of crypto. As the war on cryptocurrencies intensifies, it remains to be seen how the battle between traditional banking and the decentralized financial revolution will unfold in the coming months and years.