Bloomberg Analyst: Crypto Faced Its Own Set of Bank Runs Alongside the Wider Economy

cryptonews.com:

Despite being a disruptive force which pits itself in opposition to traditional finance, crypto has also witnessed its own series of bank runs, and some observers believe future runs of what some call 'crypto shadow banks' could become more destructive, according to Matt Levine, an opinion columnist for Bloomberg.

The analyst stated that, while cryptocurrencies started as a form of backlash to fractional reserve banking and the 2008 shadow banking crisis, by 2022 the crypto industry had matured to the point that it managed to recreate "both fractional reserve banking (but without regulation!) and a 2008-style shadow banking crisis." 

"People in crypto did not trust the banks, in part for the good reason that the banks were doing something (maturity transformation) that is both risky and in some deep sense deceptive. But people in crypto did want the benefits of maturity transformation: People with crypto wanted to park it somewhere safe, earn interest and have access to it whenever they wanted; other people wanted to borrow crypto without the risk of having to give it back early,” according to Levine who identifies a number of what he describes as crypto shadow banks, including FTX, Celsius and Voyager, among others. 

Deprived of most regulation, those companies were enabled to offer their services, market them aggressively, but also tank most of their customers’ money, he concludes. 

"If your concern is that crypto shadow banks are becoming more interconnected with the real economy, and that therefore future runs on those shadow banks might be more destructive, there are two ways to go,” Levine said, presenting two potential scenarios that could happen. 

Under the first scenario, the analyst said that U.S. regulators could