Cathie Wood, founder of investment management firm ARK Invest, has questioned the US government's handling of the recent banking crisis. In a tweet, she highlighted the irony that as crypto assets soared during the Silicon Valley Bank meltdown, the government suggested that investors in regional banks - equity and bond holders - should prepare to be "wiped out" in the aftermath of an unprecedented 20-fold increase in the Fed funds rate.

Wood goes on to suggest that businesses and individuals are now hedging their fiat assets with some crypto assets, and that they are also shifting from low-yielding bank deposits into higher-yielding money market funds. She argues that this is a win-win for investors, but warns that regional banks may be moving from a liquidity crisis to a slower-moving solvency crisis.

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Ironically, as crypto assets soared during the Silicon Valley Bank meltdown, this administration suggested that investors in regional banks - equity and bond holders - should prepare to be “wiped out” in the aftermath of an unprecedented 20-fold increase in the Fed funds rate.

Now we are hearing anecdotes not only that businesses and individuals are hedging their fiat assets with some crypto assets but that they also are lowering risk and increasing returns by shifting from low yielding bank deposits into higher yielding money market funds, a win-win.

As a result, now that they can borrow at will from a government facility at ~4.5%, regional banks seem to be moving from a liquidity crisis to a slower moving solvency crisis.

Against depressed interest rates on the long-term assets they purchased during the coronavirus crisis, banks now are borrowing at ~4.5% to plug deposit outflows, causing net interest losses and lower earnings that will erode their equity and threaten their future.

Given this negative feedback loop, why will deposits flow back to regional banks? If they do not, then M2 growth is likely to accelerate further into negative territory for the first time since the 1930’s, putting significant stress on both commercial and residential real estate.

Why have bitcoin and other crypto assets appreciated during this banking crisis? In our view and in contrast to those in the traditional financial world, many crypto assets face no central points of failure: they are decentralized, transparent, and auditable.

Why would regulators deprive US citizens of access to crypto assets, “insurance” born in the 2008-09 global financial crisis against the probability, hopefully low, that once again the Fed and regulators have made policy mistakes that threaten our well-being?