How Biden's bank bailout may impact the stability of stablecoin
The stress test is a financial assessment conducted on banks to evaluate their ability to handle the adverse economic condition. Biden’s bank bailout may impact the stability of stablecoin. It refers to the government’s plan to assist struggling banks financially during economic turmoil.
Stablecoins designed in a way to maintain a stable value. However, a recent banking crisis that caused major stablecoins to depeg raised concerns about their stability.
This article explores the implications of this event on the strength of stablecoin and the traditional finance system. It also discusses the effect of the banking crisis on digital assets. It also affects the potential benefits and risks associated with investing in stablecoin.
The collapse of Silicon Valley Bank and the Depegging of Major Stablecoins
Silicon Valley Bank recently suffered a bank run after revealing a financial hole. It is all due to selling part of its inflation-hit bond portfolio. Basically it led to a de-pegging event for major stablecoins in the crypto sector. It was a straightforward stress test or a sign of weakness in the system.
The second largest stablecoin by market capitalization, the Centre Consortium Coin saw its value plunge to $0.87. It revealed that $3.3 billion of its over $40 billion reserves held at SVB.
Coinbase, a Consortium member, made worse crisis when it announced it was halting USDC to dollar conversions over the weekend. As USDC lost its peg, so did with decentralized stablecoin, using it as a reserve asset.
The Banking Crisis’ Effects On Digital Assets
The collapse of SVB and the ensuing banking crisis strongly impacted digital assets. Financial institutions have since banded combine to protect other banks. The protection is with investors and depositors raising questions about the stability of several other institutions, including Deutsche Bank.
Credit Suisse also collapsed after investments in different funds went south and an unsubstantiated rumor of its impending failure. This Swiss government brokered an emergency rescue deal where rival UBS acquired Credit Suisse at a steep discount.
Jason Allegrante Review
Jason Allegrante said that the banking crisis partly due to rising interest rates exposing banks with large portfolios of low-interest-rate bonds to risk.
He further said we might be in the early stages of a nationwide run-on regional bank. If this happens, he said there would not only be widespread regional bank failure. But there will likely be consolidation and concentration of deposits in large, systematically essential banks.
Moreover, he added that such a crisis would pressure regional banks to sell assets to meet liquidity needs. And it could ultimately lead to more bank failures. It would have far-reaching results for the digital asset industry in the United States.
Potential Benefits And Risks
To Circle, a firm U.S. banking system that ensures deposits are safe and accessible is essential to the financial system. The U.S. government’s intervention was a sign that the system works, even if it means taxpayers ultimately foot the bill. The spokesperson said that;
Every design tested and a stress test validating and restoring confidence in our financial system is a good outcome. It is ultimately n the back of taxpayers. This situation shows that while our economic system tested. We still have adequate means of dealing with a crisis.
The de-pegging event that occurred with major stablecoins after the collapse of Silicon Valley Bank. It concerns that Biden’s bank bailout may impact the stability of stablecoin. At the same time, stablecoins could restore their peg after the U.S. government stepped in to bail out depositors at SVB.
The crisis also highlighted the need for greater protections for digital assets, such as FDIC insurance for crypto-related institutions. It could alleviate concerns about the privacy of digital assets under their custody.
Finally, the crisis served as a reminder that even digital assets are subject to the same risks as traditional financial assets. A strong and stable banking system is essential for both. As the spokesperson for Circle said, this situation shows whether our economic system is tested. We still have adequate means of dealing with a crisis.