Is FTX the Federal Reserve of Crypto? -Quartz
The cryptocurrency industry sometimes touts itself as an alternative to the traditional financial system and its reliance on the US Federal Reserve, but this week crypto investors are learning just how useful it is to have a lender of last resort.
As the industry weathers a bear market that destroyed 2 trillion dollarsBahamas-based crypto exchange FTX gave BlockFi crypto lender a $250 million loan. FTX chief Sam Bankman-Fried also owns quantitative trading firm Alameda Research which last week extended a revolving line of credit at crypto broker Voyager Digital last week. (Crypto markets are pleased with the deal: Over the past 24 hours, the FTX token is in place almost 9%).
Securing loans with digital assets that are worth more than the loan principal was meant to keep crypto lenders creditworthy in times of crisis.
However, these lending standards are not always met, as some lenders offer unsecured loans and others lend secured loans as collateral. Collateral also does not protect a lender from a borrower unable to meet margin calls in a market where the price of collateral suddenly drops.
FTX CEO is now picking winners and losers in the crypto bear market. This move is reminiscent of when JP Morgan stepped in to save the traditional financial system during the banking panic of 1907, analysts have Noted on Twitter.
At the time, JP Morgan with John D. Rockefeller and then Treasury Secretary George Cortelyou granted several million loans to stop the bank run. Morgan heavily armed New York banks to lend to brokerages to keep the New York Stock Exchange (NYSE) open.
The Federal Reserve originated in 1913 as a lender of last resort and as an entity controlling both credit and the supply of US dollars.
Unlike the bank panic of 1907, it is not clear that this latest crypto crash will result in the creation of new centralized entities, but it does set a precedent that companies that crypto markets will look to in the future to stabilize conditions. financial. The more the crypto world tries to avoid reliance on the Fed, the more its biggest players will end up playing a similar role instead.