Crypto thrives on the wreckage in traditional banking sector

It’s an ill wind that blows no good, they say. No surprise then that there have been some winners in the effective collapse of Swiss banking giant Credit Suisse into the arms of a rescuing rival, UBS, at least in the short term.

You could credibly argue that shareholders have come out in better shape than might have been expected. True, the 76 Swiss centime they will receive per share of their bank stock by way of shares in UBS is still a stinging loss but at least they got something out of the wreckage of the once-proud bank.

That’s more than can be said for the holders of what turned out to be particularly risky Additional Tier 1 (AT1) bonds in the bank. In any company collapse, shareholders are normally the most exposed but, in this case, it was those who had invested €16 billion in AT1s who were wiped out while shareholders got €3 billion.

Inevitably, within hours of the deal being announced, international lawyers were talking to bondholders about possible legal action.

Irish banks face higher costs but appear insulated from wider Credit Suisse fallout, analysts say

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We are seeing echoes now of the run-up to the 2008 crash

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David McWilliams: We are heading into global financial crises. Will it be 2008 all over again?

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Credit Suisse staff see deferred bonuses frozen by Swiss government

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Other “winners” included staff who have been assured that the bank will continue to hand out bonuses and pay rises as planned this year. Of course, many of those same staff are paid partly in shares, may also be hit by the AT1 fallout and could well be out of jobs shortly so it is hardly unmitigated joy from their perspective.

But, for crypto, fears of a burgeoning banking crisis have been the best news the sector has heard in many months.

Bitcoin, the biggest of the crypto coins, hit its highest level in nine months on Monday as crypto traders shifted funds away from banks. It has surged more than 30 per cent over the past week and was trading just shy of $26,000 on Monday night, its highest point since the onset of the crisis of confidence that engulfed the market last summer. The second-largest token, ether, has risen a fifth in the same period.

Crisis in the traditional banking sector was never going to be bad news for the insurgents, but whether crypto can deliver as an investment class in the longer term remains uncertain, its sometimes tenuous position highlighted by the fact that it was three crypto-friendly banks that went to the wall in the US.