Ken Brown is the finance editor at The Information, recently opined that the current crypto winter could be more severe due to how interconnected crypto is with traditional finance.
"Crypto is more intertwined with the traditional financial system than ever before," he said during a recent interview.
Major weak points
Crypto winter is a phrase that people have used "a bunch of times", particularly after the FTX collapse, Brown explains.
"Right now, we're in another bad sell-off. Crypto's down a bunch. The most speculative stuff is down a lot…There was a boom and prices went up a lot, and now they're coming off."
During the previous bull market, a lot of crypto assets were bought and sold speculatively. Some companies, like Strategy (MicroStrategy), invested heavily in crypto and pushed prices up by buying more as prices rose.
"By the structure of these things, as they go down, they drive crypto lower."
Large-scale runs on stablecoins could destabilize the broader market. He notes that stablecoins are increasingly used in countries with unstable currencies, making them systemically significant
Brown cites Silicon Valley Bank and Circle (issuer of the USDC stablecoin) as examples. Circle had billions of dollars at Silicon Valley Bank, which collapsed due to losses on its assets.
"A new kind of winter"
"This is really what I call a new kind of winter because it's so interlinked. There's a ton of crypto on the stock market. There are these stable coins, there are other products, and everyone's issuing these stable coins."
"What I'm really looking at is how this sell-off, whether that ends now or keeps getting worse, interacts with the global financial system, the traditional financial system."
"The regulators of this system are very worried about this and are looking really carefully. This is a test. Pay attention. This is going to tell us how crypto and the traditional financial system are going to react this time," he added.
Dan Burgin
Vladislav Sopov
U.Today Editorial Team
