What a crazy last few days! I hope you're all having a great week in the world of crypto! In today's free update, we'll delve into the recent issues with traditional banking, how cash injections have provided short-term solutions, and the ongoing battle between banks and crypto. Finally, we'll discuss what's fuelling the recent crypto pump and what to expect in the coming week.
đŠ The Traditional Banking Problems
The traditional banking system has faced significant challenges recently. In a nutshell, banks normally receive deposits, pay you a small interest rate, and invest the money for profit. This process works well if it's done in a controlled manner. However, problems arise when banks gamble, maintain low capital reserves, and engage in risky investments with customers' money. This can lead to liquidity issues and, in extreme cases, bank runs, as we've seen with Silicon Valley Bank.
đ Short-Term Solution: Liquidity Injections
To remedy these issues in the short term, liquidity injections have been provided to banks like SVB (Silicon Valley Bank). The FED decided to start the "Bank Term Funding Program" to avoid a banking crisis. Basically, the FED will bail out all banks, not only the ones having troubles, but also all the banks that might have troubles during the next year. For now it's "only" $25B, but the reason is clear: The FED has raised interest rates so fast that something in the financial system is damaged and must now row back.
Although the FED intervenes here and definitely brings liquidity into the market, this is, if at all, only slightly inflationary, since in 90% of the cases illiquid (but already existing) money is replaced and no new money is printed.
Thus, new liquidity is created, not new money from the money printing machine. These liquidity measures can prevent bank runs and stabilize the banking system by discouraging short-sellers and reassuring customers.
đ€ Banks vs. Crypto: Greed and Shortsightedness
Comparisons between banks and crypto platforms like BlockFi, Three Arrows Capital, and FTX can be drawn, with greed and shortsightedness being common factors. Many companies leverage customer funds in the pursuit of higher profits, which works only as long as money keeps flowing in. When withdrawals occur, the problems begin.
Our goal should be to learn from the past! There will always be platforms (exchanges, banks, services, ...) that make greedy decisions. The only thing we can change is to make better decisions as investors. And the regulator should maybe change some things, but putting hope in the regulator is the stupidest thing we can do đ
đ Crypto Market Pump: Factors and Future Outlook
Now, let's discuss why the crypto market has been pumping. Several factors have contributed to this trend:
Deposits in American banks are secured.
Binance announced plans to exchange 1 billion BUSD into BTC, ETH, and BNB.
Relatively good CPI numbers.
The upcoming FED meeting will be a key event to watch, as decisions on rate hikes and Quantitative Tightening will be made. These outcomes will play a significant role in determining whether we are entering a Crypto Spring.
In summary, I think we are finally seeing some action in the market again, and we can make good use of these volatilities.
Let's go! đ
