Will Crypto Industry Learn from the Mistakes of Banks?
It is to be seen if the crypto industry will learn from the errors and mistakes of the banking sector
Some individuals within the crypto industry may use the shortcomings of banks such as Silicon Valley Bank, Silvergate Capital, and Signature Bank to reinforce the belief that traditional financial institutions (TradFi) are inefficient and not reliable.
You may have already been advised by a Bitcoin enthusiast in your circle to safeguard your cryptocurrency in cold wallets to avoid financial uncertainties. This perception supports the idea that banks lack the necessary infrastructure, risk management mechanisms, and regulatory compliance to serve the crypto industry. The notion that the shortcomings of banks like SVB implicate the entire banking industry and validate the superiority of crypto is completely unfounded. It is important to note that crypto cold storage is not a substitute for banking.
The truth is, SVB appears to have made some unwise Treasury investments, failing to anticipate the inflation-induced interest rates that we are currently experiencing when we purchased government bonds.
This miscalculation led to a significant bank run that will have repercussions throughout the tech industry. However, at present, it does not suggest any wrongdoing on the part of SVB. This is in stark contrast to crypto companies like FTX, which redirected investors’ funds without disclosure, resulting in a complete loss of funds. Similarly, Celsius Network and numerous other crypto firms have faced similar accusations. The crypto industry’s goal is to provide a different financial environment that rectifies the errors made by banks. However, ironically, numerous crypto founders reproduce the same flaws as traditional finance in a blockchain context because they refuse to learn from the lessons that banks have already learned from their past blunders.
There are several apparent reasons for this phenomenon. Notably, a significant number of crypto executives have a technology-oriented background, rather than finance, and have not spent much of their formative years studying the history of finance.
These founders become so enamored with the potential of blockchain as a technology that they overlook the fact that banks are, in fact, competent in their operations. Banks excel at tasks such as asset leveraging and risk assessment, and they are forthright about lending out deposited funds.
Rather than reconstructing complete financial ecosystems from the ground up, crypto projects should capitalize on the areas where banks excel. Once these areas have been identified, they can then concentrate on addressing the issues and developing solutions for them.