- Credit Suisse has exposed significant vulnerabilities in the financial system, with ramifications for cryptocurrencies.
- It also revealed a different reason for the recent string of bank meltdowns.
- Depending on the Fed’s policy, cryptocurrency can either boom or crash.
Recent events in the banking sector, which originated in the United States, sent shock waves through the financial markets. Credit Suisse, one of the largest banks in the world, now finds itself at the center of the storm. facing a liquidity crisis, The giant hastened to secure the lifeline from the Swiss Central Bank.
This systemically important bank has exposed major weaknesses in the global financial system. But what does this mean for cryptocurrencies?
Did crypto scare Credit Suisse?
When the Silicon Valley bank collapsed earlier this week, many quickly blamed cryptocurrency. Unregulated crypto markets supposedly caused rampant speculation, affecting crypto-related entities.
Their case became much weaker after the Credit Suisse crisis. On March 15, the bank faced a liquidity crisis, losing more than a quarter of its market value. The next day, the bank He got a loan Up to $54 billion from the Swiss National Bank (SNB).
This loan narrowly helped the bank avoid the fate of a Silicon Valley bank, that collapsed just days ago. Crypto-friendly Signature Bank and Silvergate Capital have shut down amid financial troubles.
Unlike Silicon Valley’s tech-friendly bank, Credit Suisse does not have much exposure to cryptocurrency. Its liquidity problems could be a sign of weakness in the entire traditional financial system, not just technology and cryptocurrency.
What does the banking crisis mean for cryptocurrency?
This global bank is so big that any cryptocurrency exposure would be minimal. Global financial regulators view Credit Suisse as a An important system-wide bank to the world economy. The Swiss bank shares this status with only 30 other major institutions.
Panic in such a large enterprise displeased investors, which contributed to the growing uncertainty in the market. This made cryptocurrency investors ask; What does this mean for cryptocurrency? There are many scenarios to consider, and they all have to do with how the Fed assesses the state of the economy.
The Federal Reserve’s low interest rates have contributed to a huge boom in technology and cryptocurrency, but they have also caused inflation. The Fed had to slam the breaks to combat inflation, which sent markets crashing. Now, the Federal Reserve finds itself in a similar predicament.
If the Fed delays raising interest rates properly, this boosts the economy and cryptocurrency. Lower interest rates will boost investment in crypto projects, helping them reach mass adoption.
However, if the Fed exceeds its target, it could lead to inflation. This will force the Federal Reserve to react and crash cryptocurrency prices again. Ignoring inflation could lead to it spiraling out of control, which has recently happened in Turkey. The country saw an average rate of swelled nearly 48% In 2022, causing a total collapse of the economy.
On the other hand, if the Fed does not react, panic may spread throughout the market, leading to a potential recession. The collapse of the financial system does not lead to the growth of any industry. This is especially true of technology and cryptocurrency, as these industries require large capital investments.
Can cryptocurrency replace banking services?
While it may be tempting to assume that bitcoins or DeFi do well in a crisis, this is far from a certainty. The truth is that mass adoption of these networks is likely to remain far into the future.
The Bitcoin ecosystem still needs significant investment (eg a Lightning Network) to make it a viable alternative to the current financial system. The same is true for decentralized finance (DeFi).
Ultimately, both cryptocurrencies and traditional markets depend on the Fed walking a tightrope between inflation and recession. If the Fed gets it wrong, the markets could face a recession. This is exactly the reason for some points of view encryption as an alternative for the current system.
Read more about the bank’s work on three crypto-friendly banks:
Cryptocurrency Banking Canceled: Impact of Signature, Silvergate, and Silicon Valley Bank Collapses
Read about the latest revelations from the bankrupt cryptocurrency exchange FTX:
Sam Bankman-Fried and Insiders Have $3.2 Million in FTX: Deposits