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Crypto is a tiny asset class of around $850 billion. Failures here will not impact the financial system. Collapsing banks will.
Mainstream media would have you believe that the only malaise in world finance is crypto. World financial leaders such as Janet Yellen, Secretary of the US Treasury, and Christine Lagarde, President of the European Central Bank, have spoken of crypto failures possibly affecting the financial system at some future point.
However, neither of them, or indeed no other leaders of banks or other financial institutions make anywhere near as much reference to failing banks.
Depositor insurance might not be enough
Of course, it might be mentioned that even if a bank did go down, there is always insurance for the depositors, such as the FDIC in the US, or the FCA in the UK.
Be that as it may, if just one bank went down, the contagion would very probably spread to others, just like in the case of centralised crypto exchanges.
In such a situation the deposit insurance would very likely not be able to cover the depositor’s losses to the extent at which they are currently guaranteed.
Then there is also the possibility (allowed for by law) that the banks could choose to bail in those who hold deposit accounts, thereby obliging their customers to shoulder and partake in the banks losses. This situation already occurred in Cyprus back in 2013.
In a Forbes report on the event, the process of bailing in was explained, and the outcome was declared as:
“Financial institutions (e.g. German banks, and central banks including the Bundesbank) get full repayment, along with government entities, while everyone else gets to eat sand.”
Investors doubt Credit Suisse can repay debts
Credit Suisse could be that first bank domino to fall. The bank warned on November 23 that it would post a heavy loss for the fourth quarter. This was following on from Federal Reserve banks extending $6.3 billion to the Swiss bank through a dollar liquidity swap line in October. A further $3.1 billion was already swapped previous to this.
In spite of this, investors are still not convinced of Credit Suisse’s long-term solvency, and its short-term liquidity crisis is certainly not helping.
It remains to be seen just how bad the fraud and mismanagement of funds will turn out to be in the case of the crypto exchange FTX. However, with Credit Suisse, the repeated scandals that have dogged the bank for many years do mostly appear to be in the public domain.
A report by the UK-based Guardian details many of these scandals that take in a wide gamut of the most serious crimes.
“A massive leak from one of the world’s biggest private banks, Credit Suisse, has exposed the hidden wealth of clients involved in torture, drug trafficking, money laundering, corruption and other serious crimes.”
Financial reports do not highlight banking failures
So when the world’s leading financial organisations publish reports that focus on the maladies of the crypto sector it has to be wondered why they don’t also wish to highlight what is going on in the banking sector?
It might be argued that it just isn’t in their interest to do so. Financial organisations such as the IMF, the World Bank, FATF, and the BIS among others, are all deeply embedded in the traditional financial system and therefore why would they wish to shine a spotlight on any of its failures?
The awful truth
When crypto companies go down they cause losses for those who have invested in them. If banks are in danger of going down, the central banks just print money to bail them out, all to be taken care of by the taxpayers.
There is a very opaque curtain across the entire banking system. Since gold was completely removed from the backing of the fiat currency system in 1971, the dollar has lost most of its purchasing power. In fact, in 2020 alone, 20% of the entire supply of dollars in all history were printed, amounting to $3.4 trillion.
With central bank digital currencies (CBDCs) about to be rolled out across the planet, with their utility enabling the central banks to completely strip away individual privacy and freedoms, crypto is the most welcome scapegoat to take the public eye off what is happening.
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