Bitcoin, an obscure digital currency, is back in the spotlight as the US banking system faces mounting pressure. While some predict a massive rise to $1 million per coin, fueled by economic woes, others remain skeptical.
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Banking on the rise of Bitcoin?
Bitcoin Supporters see it as a beacon of stability in the storm. Unlike traditional assets tied to the health of institutions, Bitcoin has a limited supply and decentralized nature. They argue that this puts it in an ideal position to benefit from a “flight to safety” scenario, where investors seek refuge from a potentially collapsing banking system.
Modern history seems to support this narrative. In March 2023, the failure of prominent institutions such as Silicon Valley Bank coincided with a 40% rise in the price of Bitcoin within a week. Industry figures point to this as evidence of Bitcoin's role as a “non-correlated asset class” – a hedge against traditional financial turmoil.
This argument is further strengthened Latest report By the Federal Deposit Insurance Corporation (FDIC). The report paints a worrying picture, highlighting a worrying trend of unrealized losses on securities held by US banks.
These losses, caused by high interest rates, have swelled to more than $500 billion. In addition, the number of banks on the FDIC's “Distressed Bank List” rose from 52 to 63 in just one quarter, raising concerns about the overall health of the sector.
Million dollar dream or a fantasy journey?
While Bitcoin's potential to gain value seems undeniable, the ambitious $1 million price target faces strong headwinds. Experts warn that such a significant rise could come at the cost of a complete economic collapse, a scenario that would not necessarily benefit Bitcoin in the long term.
Furthermore, Bitcoin's historical correlation with other assets is not static. While there are periods of weak correlation, there have also been instances of strong correlation, especially during broader market downturns. This casts doubt on Bitcoin's ability to completely separate itself from the struggling traditional financial system.
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Another factor to take into consideration is the recent rise in the M2 money supply, a measure that represents the total money in circulation in the economy. Historically, periods of M2 expansion have coincided with Bitcoin price rises. However, the interaction between money supply and Bitcoin in a potentially shaky banking system environment remains an open question.
The road ahead for Bitcoin
The future of Bitcoin is a guessing game at the moment. Banks in the US are facing some problems, and this may make Bitcoin more valuable. But if the entire economy goes down, Bitcoin could suffer as well. So, it all depends on how bad things are with the banks and the economy in general.
Featured image from Pngtree, chart from TradingView