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The demise of Credit Suisse (CS) may be the biggest financial news for the month. For those unfamiliar with Credit Suisse, they are a Swiss company with an extensive global footprint, particularly in investment banking. This indicates that the global financial markets would be significantly impacted if they defaulted.
The serious difficulty that Credit Suisse has recently experienced has also impacted the cryptocurrency market. Numerous investors have been drawn to this crisis. Many have begun to speculate about the future of cryptocurrencies. USB, another Swiss bank and a competitor to Credit Suisse, recently bought the company.
As a result, plenty of investors are now convinced this will disrupt the financial system. This post will investigate the Credit Suisse bank crisis and how it has affected the cryptocurrency market. We will also look at the crisis’s potential repercussions and how they may affect cryptocurrencies in the future.
How Bank Crisis Affects Crypto
Let’s explain how a bank crisis impacts the cryptocurrency market. First, during a financial crisis, the bank can find it difficult to service the needs of its clients. This includes loan customers who might stop making payments on their loans. As a result the worsening of the bank’s financial situation may even lead to its bankruptcy.
Additionally, customers risk losing any money or funds they had in the bank, especially if the bank cannot fulfil its obligations to its depositors. As a result, the depositors may lose their insured deposits. This loss may cause anxiety and unease, leading some investors to seek alternative investment opportunities, such as cryptocurrencies.
The bank crisis may also impact entrepreneurs who rely on bank loans to finance their businesses. If the bank cannot provide loans or credit to entrepreneurs, they may need to seek alternative funding sources. This can also increase interest in cryptocurrencies, as entrepreneurs may see them as a viable alternative for raising capital.
Background of Credit Suisse Bank Crisis
While several US banks suffered a liquidity crisis, Credit Suisse has been in the mouths of financial experts most recently. Why? The bank is significant both in Europe and the US. Let’s put it parallel to another bank to help you visualise the importance of Credit Suisse. Silicon Valley Bank SVB has $212 billion in assets. In contrast, Credit Suisse has $515 billion in assets.
Many have also witnessed the bank’s questionable ethics. More and more evidence of nefarious activities has been surfacing in 2023. As a result, Credit Suisse’s reputation is now suffering.
It was discovered that the bank had lost more than $4.7 billion due to the failure of the US-based hedge fund Archegos Capital Management. Losses resulted from Credit Suisse’s participation in offering prime brokerage services to Archegos. This involved using its clients’ assets to invest in precarious positions. The bank’s share price crashed due to the crisis, and it was subject to intense regulatory scrutiny, leadership changes, and reputational harm.
Credit Suisse’s Involvement in Cryptocurrency Market
Credit Suisse was the first bank to launch a structured product based on Bitcoin in 2017. The Bitcoin Certificate product allowed investors to trade crypto without owning the underlying asset. Credit Suisse’s move helped to validate Bitcoin as an asset class and provided investors with a new way to enter the cryptocurrency market.
However, the failure of the hedge fund Archegos Capital in 2021 had an impact on some institutions, including Credit Suisse. Credit Suisse suffered significant losses due to this incident, which prompted the firm to review its risk management procedures. Reports suggest that Credit Suisse has scaled back its involvement in the cryptocurrency industry.
The impact of Credit Suisse on the cryptocurrency market has been relatively insignificant. Although the bank’s early embrace of structured products based on Bitcoin legitimised the cryptocurrency sector, its recent problems have forced it to withdraw from the market, at least temporarily.
Because of the bank’s involvement in crypto assets, the Credit Suisse crisis has somewhat affected the cryptocurrency market. Credit Suisse has invested in various cryptocurrency-related businesses, including blockchain technology companies, and has been a prominent player in the cryptocurrency market. Several investors have imitated Credit Suisse’s decision to invest in cryptocurrencies because they view it as evidence of their widespread acceptability.
But many investors now doubt the stability and legality of cryptocurrencies in light of the Credit Suisse catastrophe. The value of various cryptocurrencies has been swinging, and the general volatility of the cryptocurrency market has increased. But it’s not all bad.
Multiple Banks Collapse
Bear with us, we’ll get to the good part. Credit Suisse isn’t the only bank to have collapsed recently. The banking sector also saw the collapse of Silicon Valley Bank, closely followed by Signature Bank in the US. First Republic Bank nearly followed. Fortunately, it was saved by almost a dozen other US banks who backed it up with a 30 million deposit.
As its name suggests, Silicon Valley Bank is well-established in the Silicon Valley region. It collaborates with numerous tech start ups and businesses. Credit Suisse was able to provide banking services to its customers in the United States thanks to its relationship with Valley Bank. As you can imagine, SVB Financial Group’s collapse also negatively impacted Credit Suisse. Fortunately, HSBC acquired one of Valley bank’s arms upon their collapse. Silicon Valley Bank UK only cost them just over 1 GBP. With this in mind, you should know the collapse of banks often brings increased movement in the crypto market. Let’s see how.
Impact on the Cryptocurrency Market
As you can see, stocks, banks and cryptocurrencies have a strong correlation. This implies that when one market rises, the others typically do so. Stocks usually decline due to heightened recession expectations from investors, and Bitcoin suffers as a result. The Credit Suisse disaster may have several effects on cryptocurrencies in the future. There is some good and some bad news.
The Good News
The crypto market performed well despite unfavourable macroeconomic developments when it was announced that UBS would acquire Credit Suisse. When investors shift to alternative assets like cryptocurrencies, the loss of clients and investors at conventional financial institutions may favourably impact the cryptocurrency market.
One of the main advantages of this takeover is that it can contribute to traditional investors giving cryptocurrencies more credibility. Due to its desire to invest in cryptocurrencies through the acquisition of Credit Suisse, UBS — a reputable and well-established financial institution — could significantly contribute to the growth of the use of digital assets.
Since the collapse of CS, we have seen Bitcoin gain nearly 16% and Ether almost 4%. Clearly, the crisis led more people to put their investments away from the traditional banking system and into decentralised finance solutions.
If you’re one to want to benefit from this and invest in crypto, more and more financial experts are recommending platforms like https://bitalpha-ai.pro/. You will receive the support of a crypto broker, all the while benefiting from the various crypto trading tools they offer. One paired with a broker, their support, market insight and experience can guide you along the way, and help make potentially profitable trades.
The Bad News
The acquisition does, however, have some possible drawbacks. One worry is that UBS’s participation in the cryptocurrency market would result in more regulation and control of digital assets. While some view this as a positive development, others are concerned that further laws may hinder innovation and restrict the industry’s ability to expand.
First, the crisis has clarified that the Bitcoin sector needs more regulation. Several investors have demanded more oversight to avoid situations similar to this one in the future.
The fact that UBS is recognised for its cautious attitude to investing could be another disadvantage of the deal. This can restrict the bank’s willingness to experiment with novel and developing technology, which might stifle innovation in the cryptocurrency industry.
However, the acquisition of Credit Suisse and the fact that the banking industry faces several dangers and difficulties on a global scale also have a bad side. Banks continue to be crucial allies for cryptocurrency businesses. It won’t be any easier for the crypto business if banks are struggling since they will be even less likely to collaborate with them or increase fees.
Final Thoughts
UBS’s acquisition of Credit Suisse has affected the bitcoin industry overall. Although it might encourage more market adoption and stability, it also raises the possibility of more regulation and a more cautious investment approach.
It will be interesting to watch how major financial institutions like UBS continue to negotiate this brand-new and exciting landscape as the cryptocurrency business develops. Investors should continue to be aware of the possible risks of investing in digital assets while closely monitoring industry changes.
