How Merger of UBS and Credit Suisse will affect crypto market

03/27/2023

5 minutes read

2023.03.27 12:44

By Tiffany Smith

Budrigannews.com – With the acquisition by UBS, the largest Swiss bank, Credit Suisse’s 167-year history came to an end on March 19. Under pressure from the Swiss government, UBS purchased its struggling rival for $3.25 billion, or less than half of Credit Suisse’s $8 billion market value just two days earlier, on March 17.

On March 20, Credit Suisse shares plunged more than 60% in European trading, while UBS shares fell 9%.

The Swiss government will contribute $10 billion to cover UBS’s potential losses as a result of the transaction. The banks will also be able to get a $108 billion bankruptcy loan from the Swiss central bank.

Swiss distribution, the Neue Zürcher Zeitung, considered the takeover the “greatest financial tremor in Switzerland since the salvage of UBS in 2008 and the establishing of Swissair in 2001.” A salvage ought to forestall an emergency that spreads to different banks, similar to what happened quite a while back after the liquidation of Lehman Siblings in the US. The takeover of Credit Suisse was “fundamental” for Switzerland as well as for the security of the whole worldwide monetary framework, contended Swiss Confederation President Alain Berset.

Over a weekend, a merger worth a billion dollars.

In the Swiss political arena, reactions to the deal were varying. It was praised by the Free Democratic Party of Switzerland (FDP), which stated that the takeover was necessary to protect Switzerland’s position as a financial and economic center from serious harm.

Analysis came from the co-leader of the Social Progressive faction of Switzerland, Cédric Wermuth, who tweeted that nothing had changed since the 2008 monetary emergency. ” He added that the state must once more intervene to save the financial system as a whole, which is sick and absurd.

The “Occupy” movement on Zurich’s Paradeplatz, where Credit Suisse and UBS branches are next to each other. Source: The German Institute for Economic Research’s president, Ronald Zh Marcel Fratzscher, is of the opinion that the takeover could result in a single enormous bank, which would cause general instability in the event of a fictitious collapse.

The German economist stated in an interview with Die Tageszeitung that the current situation is significantly less concerning than it was prior to the 2008 global financial crisis. Today, many financial institutions have suffered enormous losses as a result of the rapid rate increases implemented by central banks.

In other words, the issue at hand is “unusual aggressive monetary policy,” rather than “systemic interdependence between financial institutions” or “inadequate provisioning in terms of liquidity and capital.”

“It is likely that regulatory pressure will grow.”

In an interview with Cointelegraph, Olga Feldmeier, co-founder of the Swiss investment platform Smart Valor, stated, “This takeover of Credit Suisse by UBS has sent many into a deep shock.” She held the positions of executive director and head of sales in the wealth management division of UBS prior to 2014.

It had long been known that the bank was experiencing difficulties. In any case, who might have felt that the bank, which was once worth $80 billion, could be the subject of a $3 billion takeover by its main opponent UBS?” Feldmeier asserts that the 50,000 employees are not the only ones shocked. Lenders, particularly those with a particular high-grade bond type known as “Additional Tier 1 Capital,” have been hit even harder.

Feldmeier, however, concurred that the consequences without this takeover would be catastrophic when questioned about the alternative. After all, where would one be protected in the event of a bankrupt Swiss or one of the top 30 systemically important banks? The Federal Reserve and the European Central Bank would be unable to assist in a systemic bank run.

Similar thoughts were expressed by Mauro Casellini, who serves on the board of the CCA Trustless Technologies Association and was CEO of Bitcoin Suisse Liechtenstein and head of Bitcoin Suisse Europe until January 2023.

He told Cointelegraph that the Swiss government and regulators were right to act quickly to find a solution that would have the least impact on the market possible.

“Despite the fact that there had been finishes paperwork for quite a while that things were not going flawlessly at Credit Suisse, it was challenging so that outcasts could see exactly the way in which basic the circumstance was. Although it is too soon to determine whether this was the best option, Casellini stated that regulatory pressure is likely to rise as a result of the new “super bank’s” impressive size.

The positives and negatives.

Cryptocurrency has benefited and suffered from the banking crisis. When it was announced that UBS would acquire Credit Suisse, the cryptocurrency market performed well despite negative macroeconomic developments. With a gain of 15.5%, Bitcoin (BTC) won the cryptocurrency rally, reaching $28,671 on March 22. 3.9% of Ether (ETH) rose. Driven by the BTC cost rally, the offer costs of recorded Bitcoin mining organizations have ascended by as much as 120% starting from the start of the year.

Feldmeier says that it’s a good thing for big and small cryptocurrency exchanges. According to Feldmeier, “our industry would not be harmed by more trading, higher sales, or some of the long-forgotten tailwind.” This also makes it more likely that the Bitcoin cycle will deliver on its promises, specifically that the next bull run will revolve around the halving of Bitcoin in March 2024.

The crypto market may benefit from investors switching to alternative assets like cryptocurrencies as a result of the loss of clients and investors in traditional financial institutions.

However, there is also a negative aspect to the Credit Suisse acquisition and the fact that the banking industry faces numerous global risks and challenges. Crypto companies still rely heavily on banks as partners. If banks are having a bad time, they won’t want to work with crypto companies or raise fees, which won’t help the crypto industry.

According to Casellini, the closing of fiat on- and off-ramp banks like Silvergate and Signature, as well as the collapse of Credit Suisse, have created “significant risks for the crypto market.” “To build trust with investors and ensure the long-term viability of the market, it was necessary to address issues such as regulation, security, and transparency,” the expert stated. In the long run, our industry will benefit from regulation in developing a more successful and decentralized alternative to the conventional financial system.

In addition, Casellini anticipates additional challenges and risks in the future as a result of the shifting landscape of interest rates and additional requirements placed on banks.