UBS’s acquisition of Credit Suisse brings both good and bad to crypto

On Sunday 19 March, the 167-year history of the banking giant Credit Suisse ended with a takeover of the largest Swiss bank, UBS. Under pressure from the Swiss government, UBS took over its ailing competitor for 3 billion Swiss francs ($3.25 billion) – less than half the $8 billion market capitalization of Credit Suisse just two days before, on Friday 17 March.

A day later, on March 20, Credit Suisse shares plunged more than 60% in European trading, with UBS down 9%.

To cover any losses that UBS may incur in the deal, the Swiss government will provide $10 billion. The Swiss central bank will also make a bankruptcy loan of 108 billion dollars available to the banks.

The Swiss publication, Neue Zürcher Zeitung, called the takeover the “biggest economic earthquake in Switzerland since the bailout of UBS in 2008 and the grounding of Swissair in 2001.” A rescue should prevent a crisis that spreads to other banks, similar to what happened 15 years ago after the bankruptcy of Lehman Brothers in the USA. The takeover of Credit Suisse was “necessary” not only for Switzerland, but for the stability of the entire global financial system, Swiss confederation president Alain Berset claimed.

Billion-dollar merger over a weekend

The agreement spurred mixed reactions in the Swiss political arena. The Free Democratic Party of Switzerland (FDP) praised it, stating that the takeover was necessary to avoid serious damage to Switzerland as a financial and economic center.

The criticism came from the co-president of the Social Democratic Party of Switzerland, Cédric Wermuth, who tweeted that nothing had changed since the financial crisis of 2008. “The whole financial system is sick and absurd,” he said, adding that the state must step back in and save it.

Marcel Fratzscher, president of the German Institute for Economic Research, believes the takeover could lead to one giant bank, which would provoke instability across the board in the event of an imagined collapse.

In an interview with Die Tageszeitung, the German economist said that the current situation is not nearly as worrying as before the global financial crisis in 2008. “Today, it is the sharp interest rate increases by the central banks that have taken many financial institutions by surprise and have led to huge losses.”

In other words, the problem today is “not systemic interdependence between financial institutions or insufficient supply of liquidity and capital, but unusually aggressive monetary policy.”

“Regulatory pressure is likely to increase”

“This takeover of Credit Suisse by UBS has sent many into a deep shock,” Olga Feldmeier, co-founder of Swiss investment platform Smart Valor, told Cointelegraph. Until 2014, she was managing director and head of sales in the asset management business at UBS.

– It had been known for a long time that things were not going so well at the bank. But who would have thought that the bank, once worth $80 billion, would be the subject of a $3 billion takeover by arch-rival UBS? According to Feldmeier, it is not just the 50,000 employees who are shocked. Lenders have been hit even harder, especially those with a special high-quality bond type – the so-called additional capital.

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But when asked what the alternative would be, Feldmeier agreed that without this takeover the consequences would be catastrophic. “After all, where is it safe if one of the top 30 systemically important – and Swiss – banks goes bankrupt? In a systemic bank run, neither the European Central Bank nor the Fed would be able to help.”

Mauro Casellini, board member of the CCA Trustless Technologies Association and until January 2023, CEO of Bitcoin Suisse Liechtenstein and head of Bitcoin Suisse Europe, shared a similar view.

He told Cointelegraph that it was right that the government and regulators in Switzerland acted quickly to find a solution with the least possible negative impact on the market.

“Although there had been signs for some time that things were not going smoothly at Credit Suisse, it was difficult for outsiders to see how critical the situation was. It is too early to say whether this was the right solution, but the size of this new ‘superbank’ is impressive and regulatory pressure is likely to increase, Casellini said.

The good and the bad

The banking crisis has brought some good and some bad for crypto. Despite negative macroeconomic developments, the crypto market performed well when news broke that UBS would take over Credit Suisse. Bitcoin (BTC) won the crypto rally with a gain of 15.5% (now $28,671 on March 22). Ether (ETH) rose 3.9%. Driven by the BTC price rally, the share prices of publicly traded Bitcoin mining companies have risen by as much as 120% since the beginning of the year.

According to Feldmeier, it is a positive phenomenon for crypto exchanges, both large and small. “More trade, higher sales, some of that long-missing tailwind wouldn’t hurt our industry,” Feldmeier said. “This also increases the certainty that the Bitcoin cycle will deliver what it promises – namely the next bull run around the Bitcoin halving in March 2024.”

The loss of customers and investors in traditional financial institutions can positively affect the crypto market as investors turn to alternative assets, such as cryptocurrencies.

However, the Credit Suisse acquisition and the fact that the banking industry is facing many different risks and challenges worldwide also has a negative side. Banks remain important partners for crypto companies. If the banks do not do well, they will be even less willing to work with crypto companies or raise fees, which will not make life easier for the crypto industry.

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The recent closures of fiat banks such as Silvergate and Signature, followed by the collapse of Credit Suisse, have created “significant risks to the crypto market,” Casellini said. According to the expert, it was necessary “to address issues such as regulation, security and transparency in order to build confidence among investors and ensure the market’s long-term viability. Regulation will help our industry in the long run to build a successful and more decentralized alternative to the traditional financial system.”

Casellini also expects to see more challenges and risks in the future due to the changed interest rate landscape and additional requirements for the banks.

“It will be interesting to see how governments and particularly national banks respond and whether they will rescue struggling banks or let them fail.”