In the past weeks, investors have fled out of risky assets that resulted in equities, oil, cryptos to even gold and bonds falling in prices. The risky assets along with traditional safe haven assets were left out in favor of cash.
As usually happens in times of crisis, investors turn to hoard cash by selling everything they can get their hands on. However, people stockpiling indicates a cash crisis might be brewing. Interest rate cuts to zero percent and even in negative territory isn’t helping the case for banks either.
Yesterday, the Federal Deposit Insurance Corporation took to Twitter to advise people against withdrawing money and hoarding, cash emphasizing that “the safest place to keep your money is in the bank.”
In this less than a minute long video, FDIC talks about how in the current unprecedented times of novel coronavirus, people are fearful about what they should be doing with their money when they needn’t be because “your money is safe at the banks.” FDIC said,
“The last thing you should be doing is pulling your money out of the banks now thinking it is going to be safer someplace else. You don’t want to be walking around with large wads of cash and you certainly don’t want to be hoarding cash in your mattress. It didn’t pan out well for so many people.”
The corporation said, “no depositor has lost a penny of their insured deposits since 1933 when the FDIC was created,” as such “if you’re talking about having your money in a safe place, please keep it in an FDIC-insured bank.”
“You nervous about something?” is what Nik Carter of Coin Metrics responded with.
Forget the mattress! Keeping large sums of cash at home is risky. The best place to protect your money is in an FDIC-insured bank where it’s safe and sound. Learn how the FDIC safeguards your #money at https://t.co/O2cb1bTUJs pic.twitter.com/R8pFVxBPrM
— FDIC Gov (@FDICgov) March 24, 2020
Bank Runs
In times of economic hardship, everyone makes a dash for cash and this time as it is happening, banks are struggling to provide liquidity.
According to reports, the likes of Bank of America, JPMorgan, and Chase are limiting the withdrawals. These banks have capped the limit between $3,000 to $10,000 in some of the areas.
“We don’t keep large amounts of cash in big bills in the branches because it’s dangerous for our employees and there is low demand,” said BoA.
However, there are no such limits on withdrawing crypto, as long as you are the one that owns your keys. But during the recent market carnage, the fact that cryptos also crashed hard has some in doubt.
However, it must be noted that so did gold just like it fell in 2008 during the financial crisis but only to emerge as the winner. And the same is expected of the deflationary Bitcoin with a hard cap of 21 million, unlike the US Dollar, that the Federal Reserve keeps on printing more and more.
As BitMEX in its recent report noted, “Where the Bitcoin price may shine is in the volatile inflationary aftermath of the response to the crash.”
