Although the cryptocurrency industry is faltering in the aftermath of the collapse of FTX, a large coin exchange, it is analyzed that it will not have a significant impact on existing financial markets such as banks.
The Wall Street Journal (WSJ) predicted, “Although cryptocurrency companies are deeply related to each other, traditional financial companies such as banks are not their main creditors and have no important contacts.”
As FTX, the world’s third-largest cryptocurrency exchange, filed for bankruptcy with the court, a liquidity crisis was transmitted to other cryptocurrency exchanges as well as cryptocurrency lenders, pushing Genesis Trading and BlockFi on the verge of bankruptcy.
However, unlike government bonds, mortgage loans, commercial loans, and derivatives, cryptocurrency had no role in the real economy, so the traditional financial industry did not have to be related to the cryptocurrency industry. In addition, cryptocurrency was not used as a payment method, except for money laundering and ransomware, where the flow of money should not be traceable.
Although some banks lost money by lending or investing in the cryptocurrency industry, Warren Buffett and JP Morgan CEO Jamie Dimon, who are classified as mainstream investors, did not even approach the cryptocurrency industry. Accordingly, WSJ analyzes that the impact of the collapse of cryptocurrency on the traditional financial industry is quite limited.
However, as attention was focused on the advantages of cryptocurrency without regulation and anonymity until the bankruptcy of FTX, there was increasing pressure on regulators and banks to accept cryptocurrency, and there is speculation that the situation may have changed if this crisis broke out a few years later. In this case, the FTX bankruptcy crisis prevented a bigger financial crisis in advance that could have come.
The WSJ predicted that cryptocurrency will need more time to be fully accepted into traditional financial systems such as banks due to the incident.
Some expect that the cryptocurrency crisis can be overcome with the same solution as the 1837-1863 “Free Bank Era” in the U.S., when private banks, not central banks, issued their own bills.
In the era of free banks, where fraud, bank runs, and withdrawal were regularly suspended, the problem was solved only after unifying the currency with dollars, creating the Federal Reserve (Fed), the central bank, and creating comprehensive regulations with the deposit insurance system. However, WSJ pointed out that if this method is applied to cryptocurrency as it is, efficiency and anonymity, which are advantages of cryptocurrency, will be largely offset.