"If a Bank Run Triggers a Europe-Originated Financial Crisis, the Crypto Winter Will Prolong"

Amid concerns over financial risks following the bankruptcy of Silicon Valley Bank (SVB) in the United States, an analysis suggests that if a bank run (massive withdrawal of deposits) spreads into a Europe-originated financial crisis, the crypto winter could be prolonged.

Yoon Chang-hyun, a member of the People Power Party, is speaking at the Digital Asset Special Committee's meeting between the ruling and opposition parties held on the 24th at the National Assembly Members' Office Building, under the theme "SVB Incident & Crypto Winter, Is Another Financially Driven Economic Crisis Coming?" Photo by Kim Hyun-min kimhyun81@

On the 24th, at the 7th Civil-Party-Government Meeting titled 'SVB Incident & Crypto Winter, Is Another Financial Crisis Coming?' hosted by the People Power Party Policy Committee, the Political Affairs Committee, and Representative Yoon Chang-hyun at the National Assembly, Professor Lee Jong-seop of Seoul National University’s Business Administration Department presented this scenario.

Professor Lee explained, "As liquidity risk increases, risky asset prices will plummet simultaneously," adding, "If the Europe-originated financial crisis leads to the collapse of major U.S. banks, a global financial crisis will occur. In this case, along with the collapse of the financial sector, the stablecoin market backed by the dollar will also collapse, which will trigger a chain margin call in the decentralized finance (DeFi) market, potentially prolonging the crypto winter."

However, Professor Lee also presented a scenario where the bank run stops at the collapse of small and medium-sized banks and does not spread into a Europe-originated financial crisis. He said, "Although the fight against inflation remains, the Federal Reserve (Fed) is expected to adjust the pace of interest rate hikes considering financial stability," adding, "This could lead to a rise in prices of digital assets like Bitcoin and Ethereum, which have hedging functions against inflation risk."

Professor Lee emphasized, "The key lies in the interest rate curve and the Fed’s monetary policy," stating, "Along with the bank run, public distrust in the central bank’s crisis management ability has increased, which presents an opportunity for decentralized finance." He added, "However, the future direction will likely be determined by the Fed’s monetary policy," and "Depending on where the SVB-originated financial crisis ultimately ends, very different crypto winter scenarios are possible."

On the same day, Lee Jung-doo, a senior researcher at the Korea Institute of Finance, emphasized that the crypto winter is a golden opportunity to build institutional infrastructure for virtual assets.

Lee said, "During the winter period when virtual asset prices fall and trading volumes shrink, there is great expectation for changes to enable market rebound, and resistance to shocks from new regulations is low," adding, "It is urgent to create conditions where virtual asset trading can be recognized as investment rather than speculation."

He continued, "The government should expedite legislation related to virtual asset trading while ensuring strict investigation and punishment of illegal virtual asset transactions to secure fairness in virtual asset trading and help general investors regain market trust," adding, "Virtual asset exchanges, virtual asset issuing foundations, data analysis agencies, blockchain service companies, and custody service companies should jointly establish governance and information provision frameworks that enable reasonable investment decisions and risk management."

Jang Jae-cheol, chief economist at KB Bank, said, "It is premature to judge this as a crypto spring," noting, "There are interpretations that the crypto winter is over and a crypto spring is coming as Bitcoin prices surged." He added, "However, considering that the crypto market itself is highly volatile, such overly optimistic interpretations are premature," and "Moreover, since perceptions of the crypto market have not improved, it is questionable whether crypto prices will maintain an upward trend after the stabilization of the regulated financial market."