The Paris Blockchain Week (PBW), held between March 20 and 24, provided a lot of information on why the banks and crypto companies are facing a crisis. Industry leaders have spoken of similarities between the meltdown of large crypto companies, including FTX, and banks such as Silicon Valley Bank (SVB).
Why is the crypto industry facing a crisis?
On March 22, a panel discussion titled “FTX, Luna, Celsius, 3AC: From Hero to Zero” was organized at the conference. The participants included industry leaders, such as representatives of the cryptocurrency fund Node Capital, Six Digital Exchange, venture capital firm Delta Growth Fund and digital asset liquidity provider Woorton.
Panel discussion titled “FTX, Luna, Celsius, 3AC: From Hero to Zero” at the PBW
Zahreddine Touag, co-founder and head of trading at Woorton, commented that the crypto crisis involving FTX and Celsius and the bank system crisis have been caused by different reasons.
Touag explained crypto industry’s problems, such as the collapse of FTX, by the “lack of due diligence from the investors” and “lack of risk management from the players.” He commented that many investors ignore the risks associated with digital assets and mistakenly believe that regulated platforms are protected from losses:
“If you get regulated in France, you just have to do KYC and AML. When you do KYC, AML, it doesn’t protect you from losing the money. It does not at all. And in a lot of countries, a lot of people think that being regulated is being protected.”
Touag added that crypto has also suffered from other problems, including the avarice of some beginner investors. He believes that the fall of FTX and Celsius will continue to send shockwaves through the industry, with players wondering who will be affected and who will not. “Many are impacted and we don’t know. So for the next few months, there will be more news,” he stated.
What are the reasons behind the banking crisis?
Zahreddine Touag distinguished the differences between crypto and banking. He claimed that the current banking system problems were mostly caused by the fragility of the traditional banking model.
“Some people are aware, but not everyone is aware that this fractional reserve system with the banks makes it very fragile,” Touag said, commenting that only about 12% of banks’ funds are liquid.
“The trillions they say they have on their books, they don’t have it. It’s elsewhere. It’s invested, it’s in the market, but they don’t have it. So they rely on this tiny buffer, 12%,” he added.
Touag commented that problematic banks often depend on jurisdictions in Europe and the United States, while relying on this “tiny buffer” and hoping that “no one will pop up at the store asking for money.” He added that the same is true for larger banks such as Morgan Stanley and JPMorgan, but people don’t expect them to fall because of them being so large.
“That’s what happened with SVB,” Touag added, while commenting that Silvergate’s case was not exactly the same. He commented that Signature’s crisis is “another story, because the bank is not closed.”
