US banking system outlook downgraded to ‘negative’ following recent bank failures

Credit rating agency Moody's recently downgraded its outlook on the entire US banking system from "stable" to "negative." The move comes in light of recent bank failures in Silicon Valley Bank, silvergate bankand signature bankwhich has led regulators to intervene with a rescue plan for affected depositors and institutions.

Despite the downgrade, bank stocks rallied, with the SPDR Bank exchange-traded fund up nearly 6.5% in morning trading, NBC News reported. Moody's reportedly noted that a prolonged period of low rates combined with pandemic-related fiscal and monetary stimulus have complicated banking operations. Banks with substantial unrealized securities losses and uninsured, non-retail US depositors may still be at risk, according to Moody's.

Moody's expects the US economy to enter a recession later this year, putting further pressure on the financial industry. Given Moody's recent downgrade, it is clear that traditional banking systems are struggling to cope with the demands and challenges of our world today. As interest rates rise and the economy enters a recession, it is likely that more banks could fail, leaving more depositors vulnerable.

Some cryptocurrency enthusiasts believe that cryptocurrencies, especially Bitcoin, were created for a time like this, as their birth was inspired by the financial crisis of 2008. In response to the looming financial crises and banking collapses, Bitcoin price rose to its highest level since June 2022, breaking the $26,000 mark.

Twitter user @luke_broyles shared the opinion that this is why more people should embrace Bitcoin:

For cryptocurrency enthusiasts, Blockchain-based assets like Bitcoin are a great alternative to the failing traditional banking system.

in a interview with CointelegraphOn Tuesday, Trezor Bitcoin analyst Josef Tětek shared that the current sharp rise in Bitcoin's price appears to be a direct result of the "apparent fragility of the banking system." Tětek noted that the current banking crisis could see Bitcoin emerge as a safe and risk-free asset. He stressed that Bitcoin was created shortly after the world faced the 2008 financial crisis and was "probably a response to the injustice of the bailouts."

According to Tětek, the recent bank failures clearly show that counterparty risk in the banking system is a "serious problem", even if it is sometimes well hidden. He said:

“Banks no longer hold our money, but lend it out and buy volatile assets with it. The depositors are, in fact, the creditors of the banks. People are understandably looking for alternatives like Bitcoin.”

Related: Bitcoin Price Surpasses $26K As US Inflation Hits 6%

By providing a more secure, transparent and efficient financial system, many technology enthusiasts believe that blockchain-based finance and cryptocurrencies like Bitcoin can play a crucial role in mitigating the risks of traditional banking and ensuring that people and businesses have access to the financial services they need.