Experts: Not being linked to traditional finance means that its problems are of limited impact
The US economy is doing fine without cryptocurrencies
Banks will not be among the creditors of popular crypto platforms such as FTX when checking bankruptcy filings.
From the source
The Wall Street Journal reported that while the US economy clearly needs a stable banking system and currency, it would be fine without cryptocurrencies.
She explained that cryptocurrencies are what banks do not have, so when checking bankruptcy files for popular crypto platforms such as FTX and others, banks will not be among their largest creditors.
She added that although those bankruptcy files are not clear, they describe the creditors as clients or other companies related to crypto, which means that cryptocurrency companies operate in an interconnected and closed loop with few links to traditional financing avenues, which explains how this class of assets can Which amounted to about three trillion dollars, losing 72% of its value without noticeable repercussions on the global financial system.
coding space
“The crypto space is pretty much circular,” said Gary Gorton, an economist at Yale University in the United States. “Once crypto platforms get investors’ deposits, they borrow, lend and trade with themselves, but they don’t interact with companies that are connected to the real economy.”
Gorton noted that cryptocurrencies have long been marketed as an unregulated, anonymous, frictionless, and more accessible alternative to banks and traditional currencies.
new structure
Gorton said, "Cryptocurrency platforms have rebuilt the structure of banking services, if this entity engages in borrowing and lending, and becomes economically equivalent to a bank even if it is not classified as such."
He explained that the cryptocurrency crisis began last May when TerraUSD, a cryptocurrency that aims to maintain a stable value against the dollar, collapsed as investors lost confidence in its backing asset, a token called Luna.
He added that this led to the liquidation of the hedge fund Three Arrows, which had invested in Luna.
Free banks
According to the Wall Street Journal, the chain of crashes in the crypto market is reminiscent of the free banking era from 1837 to 1863 when banks issued their own banknotes, fraud was rampant, withdrawals were suspended, and financial panics were rampant.
But now the situation is different, as some inexperienced individual investors in large investment capital and pension funds have suffered losses, some of which changed their lives.
However, it differs from losses that threaten the solvency of major lending institutions and affect the stability of the broader financial system.
traditional finance
Although some loan or investment losses on the part of banks that also provide deposit and payment services to crypto companies and hold their funds cannot be ruled out, some small banks that cater to cryptocurrency companies have been exposed to large inflows of deposits.
But traditional finance had little incentive to build links with cryptocurrencies, because unlike government bonds, mortgages, commercial loans or even derivatives, crypto played no role in the real economy, the paper quoted economists.
Recipe
With crypto's reputation tarnished by bankruptcies and scandals, cryptocurrencies will have to wait much longer - perhaps forever - for full adoption by traditional banks.
In the age of free banking, the end of banking crises required the replacement of private currencies with one national dollar, and the establishment of the Federal Reserve as a lender of last resort.
However, it is not clear that the same recipe should be applied to cryptocurrencies.
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