Fannie Redux? Home Loan Banks Are Bailing Out Crypto Banks
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The crypto market seems to have priced in last year’s string of crypto company bankruptcies. But the crypto firms that survived will still be paying off bank loans to cover their positions for some time.
Crypto prices continue to edge upward while the market bears and bulls regroup.
Even the recent bankruptcy of Genesis hasn’t dampened crypto investors’ enthusiasm.
> 📝 Regulators Worry
Meanwhile, at least two banks with a high-profile roster of cryptocurrency companies for customers are staying afloat with money from home loan banks.
That may be a bullish signal for cryptocurrency in the big-picture view. It could signal traditional finance appetite for crypto exposure despite the risks. It is also, however, a source of consternation for economic planners and regulators.
They are concerned that the growing connections between the crypto sector and traditional finance pose “contagion” or “spillover” risks that could endanger the entire economy.
It was this kind of over-sophistication of financial markets that led to the financial crisis in 2008. Ironically, that happened as a result of the housing market crash that started in 2007.
A web of connections and fixed-income derivatives (just a kind of smart contract without the blockchain) left the entire economy vulnerable when home prices cratered.
> 🗃️ Source
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