As a responsible trader, you need to take note of how each banking crisis changes the market. The latest string of high-level bank failures and acquisitions has accelerated certain trends that affect savers’ abilities to produce results. Here’s some valuable insight into how the 2023 banking crisis changed everything for those seeking to store and generate wealth.
Are We In a Banking Crisis?
The first thing savers should look at is the current state of the banking sector. Many people are curious if the market is in crisis at this point or if it’s merely hiccups due to shifts in the business models and features offered by financial institutions. To accurately determine if there is a banking crisis you first need to look at the recent bank failures.
There have been three major bank failures this year already. Of these major financial institutions, many were among the largest in the entire market. The Silicon Valley Bank and Signature Bank failures both represented +$100B bank failures. These networks seemed good on paper due to their large cash holdings. However, cash holdings and reserves are different things.
These banks hold their reserve in bonds rather than cash which means that the interest rate hikes instituted by the FED dropped the value of these networks’ reserves significantly. Additionally, since the cash holdings were not reserves bit rather client funds, clients could, without warning, withdraw these funds quickly which left the banks insolvent in hours.
Why Banking Failures Affect the Market
There are some serious side effects that the most recent bank failures have had on the market. Every time a large financial institution fails it puts more pressure on other banks. The interconnected nature of the fractional banking system makes it extremely vulnerable to dominos-style collapse if major financial institutions are left to fail freely.
In the Great Depression in the 1920s and the 2008 Great Recession, the government had to step in and create new regulations to prevent a complete collapse of the banking system. Those instances had different factors that have since been addressed, unlike today’s main issues.
The main concern for most people is that banks will continue to collapse due to the FED’s decision to pursue raising interest rates as the primary means to fight inflation. There are still hundreds of banks that have the same combination of bad factors including no interest rate risk analysis and a high volume of uninsured depositors.
Whenever you have uninsured deposits, there is an added risk that the bank will have a sudden run. The reason for the skittish behavior is that these clients understand they could lose everything if they don’t act quickly during a bank run. These reasons have led many people to stick to FDIC-insured accounts that protect up to $250K.
Loss of Faith in the Central Banking System
When people are unsure about the stability of the banking system it leads to a loss of faith. The banking system has run on faith since the decision to remove the USD from the gold standard. It used to be that USD was pegged to gold and most foreign currencies would then be pegged to USD.
In the 1970s, the US went off the gold standard to free up the printing press to fight the Vietnam War. The USD remained somewhat stable because it was the only way to buy and sell oil and other vital commodities globally. Today, multiple options have left the dollar highly exposed and revealed its glaring faults.
Is there a Better Option other than USD?
The USD has some serious issues that can’t be fixed. For one, it’s no longer the primary way to conduct international commerce for many countries. This year has already seen many major economies switch to direct currency exchanges as a means to bolster their local economies.
Additionally, there are now digital currencies that offer more efficiency and transparency. They are agnostic which makes them an ideal option for anyone seeking to store value. Compared to fiat currency that can be printed at any moment, blockchain assets offer a better store of value results.
Bitcoin, the world’s first successful cryptocurrency has proved to be a much better source of value over the last $14 years versus fiat currency. One of the main reasons that Bitcoin continues to see growing demand is due to its unique structure. Cryptocurrencies like Bitcoin rely on a predictive issuance schedule and limited supply.
In the case of Bitcoin, there are only 21 million Bitcoin ever to be issued. These coins get issued every ten minutes as rewards to the miner that added the last block of transactions to the ledger. There is no way to create or issue more Bitcoin which means that as more people use the coin the demand is set to increase significantly.
Bitcoin was the first cryptocurrency and has proven to be an effective way to store wealth. One of the downsides of Bitcoin is its volatility. There are many cryptocurrencies but most have volatile market conditions. They can see massive changes in value due to market conditions, media, or other factors.
Stablecoins don’t get their value from their market cap but from a reserve asset. This style of cryptocurrency has seen growing adoption because it provides an excellent way to escape market volatility without the need to convert your crypto between fiat and crypto which can be expensive and cause delays and additional regulatory issues.
These reasons have helped stablecoins become a popular option for traders and savers. The majority of stablecoin uses fiat reserves. This structure is good for some purposes. These tokens are denominated in familiar fiat formats which helps with adoption and accounting. However, fiat currency-backed tokens lack the SoV characteristic of safehaven tokens
Safehaven tokens take the concept of stablecoins a step further. These projects leverage reserves like gold assets to escape volatility. They differ from their predecessors in that they integrate advanced protections. These tokens are designed specifically to store value over time.
META 1 Coin
META 1 Coin is a project that is pioneering the safehaven token sector. META 1 Coin gets its value from the basket for gold-related assets which improves on the concept of using gold directly. The diversified reserves help to bolster stability even when the gold market loses value.
This approach falls in line with META 1 Coin’s goal to empower savers. The project was designed for long-term slow steady growth. This structure enables the token to enjoy self-appreciation over time. It also provides the token with the benefits of gold combined with the convenience of blockchain assets.
Stability requires Protections
Stablecoin token developers have learned, and continue to learn the hard way, that it’s not easy to keep a digital currency stable. Even if you have the reserves in line, there are instances when tokens began to trade for less than their reserve value for no reason other than loss of faith.
There are also instances when a project gets targeted by a trading group or firm. These actions can result in a token losing its stable peg and falling to lower values. META 1 Coin integrates an asset value protection system that prevents these losses. The system ensures all trades meet the minimum asset value to complete.
Manipulation is Bad for Savers
Another protection integrated into META 1 Coin protects from manipulation in multiple ways. The network prevents non-humans and trading bots from entering the market. This step is vital for reducing volatility. Bots can be triggers to trade at any range and trading groups often conduct pump-and-dump strategies.
Keeping the ecosystem only humans is one of the best ways to reduce high-volume trading which increases stability. It also ensures that the main direction of the project remains community led. The developers understand that decentralization is one of the core concepts of success in DeFi.
The META 1 Coin is the first project of its kind. The team has even placed a $5M token limit on traders as another way to prevent centralization. These actions combined with the community governance mechanics make it possible for traders to have a say over their future.
Using DeFi to Get Results
DeFi Banking is on the rise because of the many benefits it brings to the table. DeFi banks are easier to use and require far less documentation to join. Additionally, they are globally available and leverage next-generation digital assets. Many of these assets offer a better store of value support than inflationary fiat currency.
DeFi Banks Provide Higher ROIs
Once you realize that you are not tied to fiat currency as your main savings asset, it opens the door to leverage a world of new wealth generation methods. DeFi networks have features specifically designed to provide you with passive income without risking the loss of your original asset.
The first DeFi feature anyone should try is the high yield savings accounts. These accounts are just like bank accounts but for digital assets. They provide an APY based on the amount you hold and are easy to set up and use. Unlike a regular bank, you don’t need to provide a ton of information to join.
The META VAULT is a great option for anyone seeking out a DeFi bank that’s easy to join and has a nice combination of features. The META VAULT supports high-yield savings accounts. These easy-to-join features make it intuitive to put your savings to work. The META VAULT pays out 10% APY which is far more than any fiat savings account.
Fiat savings accounts pay out around 0.03% currently. This rate is less than the cost of living and far below the inflation rate today. As such, you’re losing money when you store wealth in this way. DeFi banks let you leverage the best asset to get the job done and low-risk passive income streams.
It’s Easier than Ever to Decentralize Your Strategy
It used to take more time to get into a network due to the fact needed to hold a network token to join a DeFi platform. Today’s advanced networks like META 1 Coin now supports direct fiat to crypto conversions using features such as the Onramper portal. This option is fast and convenient. It also supports over 50 fiat conversions and is available in 150 countries currently.