March 22, 2023

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Cathie Wood holds the Federal Reserve’s ineffective policy responsible for the banking crisis that the country is currently going through.

According to her belief, the decentralized solutions offered by crypto could easily have prevented the prevailing banking system crisis.

Crypto as Safe Haven

As the Chief Executive Officer of Ark Invest, Wood also called cryptocurrencies a safe haven. Amidst the turmoil caused by multiple bank runs in the US, crypto tokens proved to be a safe haven.

She attributed the Federal Reserve’s policy failure to the recent failures of popular banks such as Silicon Valley Bank and other like banks.

Some other banks that are on this list of failed banking systems are Silvergate Bank and Signature Bank.

After the pandemic, the Fed was supposed to come up with a solid policy that would bring the country out of the economic disaster. However, its failure to do so has left the economy in turmoil.

The collapse of the Traditional Banking System

While the traditional banks failed, on the other hand, the crypto business escalated. The crypto industry is seen rejoicing as crypto tokens shoot up in double digits.

Cryptocurrencies like Ether and Bitcoin have touched new month highs even amidst the financial turmoil.

While the interest rates and inflation goes up bringing down the value of fiat currency, the crypto tokens go up.

She argued that the Fed policy was the primary culprit for the ongoing banking crisis since there was a venture capital funding drought.

Series of Tweets

Earlier today, Wood shared a series of Tweets in which she expressed her disappointment in the Federal Reserve.

In her tweet, she noted that despite clear indications of the impending crisis, the Fed had taken no step to prevent banking failure.

She expressed her confusion over the fact that banks and regulators were unable to caution the Fed of the looming disaster.

In her opinion, the primary cause of the ongoing banking crisis is the Federal Reserve’s policy. She says the weak policy has resulted in a lack of venture capital funding.

Asset/Liability Mismatch

The asset-liability mismatch, which is typically normal for banks, became unsustainable in the prevailing circumstances as deposits began leaving banking systems.

This was for the first time since the 1930-1939 decade. Bank’s earnings from securities were only around 1-2%, while deposits paid out at 3-5%, making the situation increasingly difficult.

This resulted in some banks, such as Silicon Valley Bank, being forced to sell securities held until maturity, which caused losses that depleted their equity accounts.

She also emphasized that the current crisis was not caused by cryptocurrencies as the ecosystem has been facing extreme scrutiny since FTX’s downfall.

The downfall of the cryptocurrency exchange led to an intense crackdown by the fed and other regulators.

Wood suggested that the regulators are unfairly blaming crypto for their own negligence over conventional banking systems and practices.

Characteristics of the Crypto Ecosystem

Cathie has been a vocal supporter of cryptocurrencies for a while, which is evident from Ark Invest’s investment in new developing markets.

Her particular interest has always been the crypto market. According to Wood, the ongoing banking crises could have been avoided if the financial system was transparent and decentralized.

She even added that the banking system should have been over-collateralized and auditable, which the crypto asset ecosystem is.

All these are characteristics of the cryptocurrency ecosystem and therefore, at this point, this type of currency is the safest bet.

What Does Wood Say in Conclusion?

Wood proposed that cryptocurrencies can be a solution to some of the central points of failure in the conventional banking system.

She believes that one of the significant issues with the traditional system is its opacity. This characteristic makes it difficult to track transactions and detect fraudulent activities.

She also commented that regulators were unfairly blaming the crypto industry for their own policy failures.

According to her restrictions on crypto will push the virtual asset out of the country, leaving people deprived of this historic innovation.

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