The Banking Crisis
March 2023: Is crypto really at fault for the global banking troubles?
Here’s a question to open up the week: what’s the biggest risk to the global banking system? Regulators would like you to think that it is the digital asset industry. Three crypto-friendly banks folded last week, igniting fears of a banking-industry meltdown and a total financial crisis.
Yet, who really knows if these banks have failed due to insolvency? Some observers even speculate that regulators are trying to put crypto out of business. The bigger picture is that banks are not failing because of bets on Bitcoin, crypto or Web3 companies. The more likely cause? Cheaper government bonds and rising interest rates are taking a toll on the fractional reserve banking system. So in truth, crypto rallying amidst the global banking crisis could send a message to critics.
Crypto markets reawaken
Major cryptocurrencies have increased in value against the US dollar since last Sunday, despite the banking crisis.
Bitcoin 🔺 ~37%
Ether 🔺 ~25%
Grayscale’s GBTC 🔺 ~33%
After the announcement of the merger between banking heavyweights UBS and Credit Suisse, Bitcoin surged past $28,000. At the time of writing, the major cryptocurrency is trading at $27,757.83 - a 2.16% increase in the past 24 hours. Stocks tied to crypto also gained over the weekend. Crypto’s overall market capitalisation has now swelled to $546B. So far in 2023, Bitcoin’s market cap alone has surged 60% while top Wall Street banks have lost $100B.
US government auctions off failed banks with crypto rules apply
US regulators are selling off two failed crypto-friendly financial institutions, Silicon Valley Bank (SVB) and Signature Bank (SBNY). However, sources familiar with the matter say that some conditions apply. In order to purchase the banks, buyers reportedly cannot deal with crypto businesses anymore.
Crypto companies turn to other big banks
Some crypto firms are reportedly turning to big banks, like JPMorgan, HSBC and Deutsche Bank. JPMorgan, one of the biggest Wall Street banks, is said to be opening new accounts for crypto firms including Web3 startups and venture capital funds. It is being selective in its process, avoiding firms that issue their own digital tokens.
Observers say despite the risks and challenges, these major financial institutions see the potential for growth and innovation in the crypto industry. They also believe that the crypto market could have the power to disrupt the traditional financial sector.
Is there a clear winner?
Regardless of which side you are on, it seems to be clear that regulators in the US have largely decided that crypto is inherently risky and needs to be purged from the banking system.
The Fed has essentially created a two-tier hierarchy between banks who lend to the government and banks who lend to small businesses and everyday people. The former gets a bailout while the latter gets destroyed. So the question is: who ultimately ends up with the short end of the stick?
There is no easy solution to the series of events and forces that undermine trust in crypto. Will a loss of faith in the traditional banking system be enough? Whatever the case may be, this is the crypto industry’s best chance to regain momentum and get closer to mainstream adoption.
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