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Comment by notch656c | Hacker News Reader

Crypto is fleeing banks. Bank investors should be worried.

I vouched. This is a very valid concern, that was even recently mentioned in a paper from the Fed.

Large crypto "banks", with large holdings in fiat banks, can cause huge outflows from those banks, upsetting their reserves balance. Essentially a crypto bank run can cause a fiat bank run. This couldn't be more true when you see examples like where FTX bought a small community bank.

People pretending crypto only effects those in the crypto space are burying their heads in the sand. Crypto is here to stay in some form or fashion.

The number of fiat banks to crypto banks is in the realm of 10,000 to 1.

So yes a crypto bank could maybe cause a single fiat bank to fail but it would be isolated. And likely a very small bank.

The entire crypto industry could collapse tomorrow and there would be likely no systemic risk to the global financial system.

Indeed, not currently. The problem is where crypto will go after the next winter. Maybe FTX will have scared off the next batch of newcomers, but then again 2017 and people still were lured back again.

Difference now is that VCs have lost interest in the crypto space.

LPs are freaking out over what happened with FTX and wanting to limit their exposure and investors in general are increasingly dubious that crypto is capable of generating sustainable, highly profitable businesses.

Indeed, but I have no doubt they will be back yet again, when there's money to be made again.

It's been the same with each tech economic bust, but the VCs come back and offer money again. Time heals wounds.

A bank run isn't a systemic risk to the banking system because we have the FDIC.

How does FDIC behave in a high-inflation environment?

FDIC was introduced in 1933.

And the inflation rate today is nothing compared to previous years [1]. So my guess is just fine.

[1] https://www.macrotrends.net/2497/historical-inflation-rate-b...

The government is good for all debts, until it isn't. But at such a point as it isn't then I think FDIC insurance becomes the least of our concerns.

Much better than crypto has

Laughs in Argentinian peso

It doesn't change the fact said bank would have gone under, and people would only be reimbursed up to $250k. It is in everyone's interest for banks to remain healthy.

You may not remember 2008, but banks are absolutely, massively, a systematic risk to everyone, everywhere.

And nobody lost their deposits!

Bank regulations have completely changed since then, so if anything we'll get new problems.

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