The Crypto Market and the Credit Suisse Bank Crisis

The news of the closure of Swiss-based bank Credit Suisse is flooding the internet and striking fear in the financial sector. CS is one of many banks that collapsed in the early months of 2023, and others may soon follow suit.

Since Silicon Valley Bank experienced a bank run during March, clients worldwide are withdrawing their funds from their own banks. This has led to more failure and a severe sense of instability in the global economy.

But, the question on many traders’ minds is, how will this affect the crypto market? The crypto market and the financial sector have clearly had a rocky relationship. Whilst some are opposed to the decentralised nature of crypto, others believe this digital asset is the best alternative to the traditional banking system. In this article, we will explore the Credit Suisse bank crisis and analyse how this has affected the crypto market so far. 

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What Is Credit Suisse?

Credit Suisse (CS) is a global banking and financial services firm in Zürich, Switzerland. It was founded in 1856 to fund the building of the Swiss rail system. Until recently, Credit Suisse was the second largest bank in Switzerland, just behind UBS. 

According to economic-based news outlets such as The Wall Street Journal, Credit Suisse survived the 2008 global financial crisis much better than many of its competitors and did not need to borrow government funds.

However, in the following years, this firm experienced an abundance of scandals that slowly began to damage its reputation. Many of these scandals involved workers in the firm helping customers from other countries evade taxes. The firm’s share price has also steadily declined over the past few years and even experienced a drop of 90% in the last year alone. 

What Is the Credit Suisse Bank Crisis?

The Credit Suisse bank crisis entered the public eye on February 9th 2023, after the firm reported an annual loss of 7.3 billion Swiss Franc (CHF). A month later, on March 15th, Credit Suisse’s share price plummeted almost 25%. This happened after its largest investor, Saudi National Bank, announced it could not provide more financial assistance. 

This resulted in fears among customers regarding the financial stability of Credit Suisse in the following week, leading to many pulling their funds from the firm. Shareholders are equally concerned as rumours of the bank becoming insolvent began to surface. 

Due to this panic, on March 18th, Switzerland’s largest bank, UBS, stepped in and announced it had reached a deal to acquire Credit Suisse for 3 billion Swiss Franc. This sudden deal has troubled both shareholders and Swiss banking customers, damaging the once-shining reputation of Switzerland’s banking system. 

The Silicon Valley Bank Collapse

The fall of Credit Suisse follows multiple other collapses in the banking sector this year. On March 10th, Silicon Valley Bank (SVB) customers withdrew over $42 million, resulting in a bank run. This led to the second largest bank collapse in US history and the largest bank failure since the 2008 financial crisis. 

Panic continued to escalate and impact Silicon Valley Bank UK, leading to the bank following the steps of its parent company and needing to be acquired by rival UK bank HSBC. Other central banks are also experiencing downfalls, leading to a stream of the biggest bank failures of the decade.  

The Power of Fear

The delicacy of the banking sector and financial markets has become apparent over recent months. Panic tends to be the leading cause of central bank collapses in modern society. Once the seed of fear is planted, it can quickly take root, leading to clients of banks withdrawing their money without hesitation. This can happen quickly due to social media and the prevalence of misinformation. 

After the fall of Silicon Valley Bank, citizens worldwide began to question the stability of their own banks. This leads to many deciding to withdraw their own funds. When this happens, since large amounts of money are being withdrawn in a short time period, banks cannot keep up with requests and end up exhausting their reserve. This is why banks appear to fall like dominos over a short time span, and chaos quickly ensues in the global economy. 

The International Monetary Fund

The International Monetary Fund (IMF) is the United Nations’ international financial institution and financial agency. The IMF has warned of an increased risk to financial stability after recent turmoil among central banks. 

Managing director Kristalina Georgieva has stated that “The rapid transition from a prolonged period of low-interest rates to much higher rates necessary to fight inflation inevitably generates stresses and vulnerabilities, as we have seen in recent developments in the banking sector” after reports surfaced showing that the global economic growth rate is slowing down to 2.9% in 2023.  

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How Has the Crypto Market Been Affected?

The sudden fall of major banks such as Credit Suisse and SVB has led to uncertainty and speculation in the crypto market. But will crypto rise from the ashes? 

Crypto Firms 

The current financial crisis and the recent collapse of banks have directly affected crypto firms. Due to crypto not having a clear regulatory framework, many traditional banking systems and lenders refrain from having any direct involvement in the asset. 

Previously major US banks such as Silvergate Capital and Signature Bank opened their services up to the crypto industry. Following the events triggered by SVB, concerned customers withdrew their funds from these banks, and both firms experienced closures in early March 2023. Now, crypto firms are scrambling to find alternatives for their banking services, many of which have turned to Switzerland.

Switzerland has built a reputation for being a ‘crypto-friendly’ hub that welcomes crypto firms from across the globe. In 2021, the country placed regulations on companies that use blockchain technology. Since then, the Swiss city of Zürich has been dubbed the “Crypto Valley”. Private Swiss banks have said they have recently become overwhelmed with requests from crypto-related businesses.

Mauro Casellini, CEO and crypto expert, has stated that the downfall of Credit Suisse poses risks for the crypto market. He claims it’s vital to “address issues such as regulation, security, and transparency to build trust with investors and ensure the long-term viability of the market.” Casellini also said that “regulation will help our industry in the long run to build a successful and more decentralised alternative to the traditional financial system.”

So, although crypto firms still have options when it comes to conducting business with financial institutions, pressure is still building in the crypto market as banks worldwide continue to fall. 

Bitcoin and Other Cryptocurrencies 

The recent absence of the most crypto-friendly banks has also directly impacted the highest-value cryptocurrency – Bitcoin. Bitcoin, the first-ever decentralised currency, was created after the 2008 banking collapse to help secure financial freedom for citizens. 15 years later, as turmoil turns the banking sector upside down, Bitcoin is, once again, proving its worth.

Following the acquisition of Credit Suisse by UBS, Bitcoin experienced a gain of 15.5% and reached $28,671. Similarly, Ethereum rose to $1,842, and the global crypto market cap reached $1.7 trillion. 

Even those who are inexperienced with trading are seeking out brokers and crypto platforms such as biticodes-app.com/ to ease themselves into the crypto market and get a head start into their crypto trading experience. These beginner-friendly services have had major growth in recent years. They have played a key role in making the crypto space more accessible and welcoming. It’s now easier than ever to start investing in Bitcoin and other cryptocurrencies without any prior experience. 

All in all, it appears that as customers are losing faith in their banks, many are seeing crypto as a suitable alternative, with Bitcoin at the forefront. 

Source: Twitter

The Alternative To Traditional Banking

Many crypto traders have surfaced to say that investing in and holding coins such as Bitcoin can be beneficial in times of financial uncertainty. By having your wealth stored as crypto assets, you have funds to fall back on if it’s not possible to withdraw money from your bank. 

Others claim that the decentralised and transparent nature of the crypto market makes it superior to traditional banking systems. As scandals mount up and distrust builds among customers, many may turn towards the crypto industry for their financial endeavours. 

Although the crypto market has its fair share of instability, at least traders can identify warning signs and act accordingly. The downfall of traditional banks, however, is often covered up and hidden from customers until irreversible damage is done.

Additionally, since crypto is notoriously volatile, investors are used to acting quickly and moving their finances around. Banks, on the other hand, are not used to rapid fluctuations, which is a big contributing factor to their failure. 

Final Thoughts

The crypto market undoubtedly has to adapt to changes and challenges that have risen due to the recent banking chaos. Despite many believing that crypto is a more-than-suitable alternative to the traditional banking system, traders still face an uphill battle. 

Banks are infamously wary of change, and although the system continues to show its flaws, many firms refuse to compromise. After all, Bitcoin and other cryptocurrencies are seen as a direct threat to the banking system. In the world of crypto, the need for an intermediary is eliminated, and transparency is increased. This results in a significant loss of control and leverage for banks. That’s why it’s understandable that despite the recent turmoil, many firms are hesitant to admit their shortcomings. 

There have been good signs regarding crypto prices after the fall of Credit Suisse and other banks. However, only time will tell its true impact on the crypto market.