The Federal Reserve bailed out US banks which were having difficulties in meeting their liquidity requirements. The securities repurchase markets, otherwise known as repo markets, were put into place after the market crash of 2008 in order to assist banks in meeting the needs of their customers. The Federal Reserve bailout, totalling almost $280 billion was triggered due to a fallout in liquidity experienced over this past week. According to the Federal Reserve and banking institutions, the problem was caused by multiple issues, none of which have been touted as being alarming as of yet. However, many people in the world of cryptocurrency see this bailout as a potential red flag that the global financial system with, the dollar at its helm, may be heading into murky waters.
One of the primary questions that have to be asked, of course, is whether a breakdown in the traditional financial system could influence a stronger response to blockchain technologies. In 2008, when the earth-shattering financial crisis occurred, blockchain technology was still in its infancy. In fact, the whitepaper for the first cryptocurrency, Bitcoin, was first released in the same year. It would seem that the rise in blockchain technology in the fall in the traditional financial market would go hand-in-hand. If that’s the case this time, and if the Federal Reserve’s repo bailout is any indicator, we could see a greater level of interest in blockchain technologies in general. Here are a few considerations that should be taken into account when predicting the future of blockchain popularity.
Worldwide economic markets losing momentum
One indicator for a potential rise in blockchain technology lies in the US-China trade war. It is certainly not a secret the trade war has affected both Chinese and American businesses in a serious and negative way. Cost of doing business between the two countries has risen to levels never before seen and while the Chinese government has put into practice some safeguards for Chinese business owners but is still a largely oppressive system which limits financial freedom on either side. With no signs of the trade war lightning up anytime soon, it would only make sense for both Chinese and American business owners to begin looking towards the blockchain realm for faster and cheaper commerce tools with a greater level of anonymity.
Back to the Federal Reserve
As previously mentioned, the Federal Reserve and banking officials have said that the multibillion-dollar bailout was conducted in response to a problem with little to no connection with any real fear of the financial system worsening. However, factors leading to liquidity problems that are now being dismissed by the same officials could possibly have been triggered by blockchain technologies.
There are many in the financial world we believe that blockchain is the way forward for traditional money markets. Blockchain would allow for a greater level of transparency when it comes to asset management between banks, as well as between banks and their customers. It is not yet clear if blockchain was, in fact, responsible for the recent liquidity problems, but there is a good chance that they had something to do with it. Either way, the Federal Reserve’s repo bailout is an indicator that there has not yet been ineffective blockchain backend built into the liquidity market.
There are a few things to learn from this development. The first is that there is a growing and ever-present relationship between blockchain technologies and traditional money markets, especially when it comes to asset management and backend repo markets. Despite that relationship, however, the technology still is not in a place for the two to be complementary with one another. Another lesson here is that a dip in confidence in the global financial system often triggers the opposites in non-traditional markets, such as blockchain and cryptocurrency. Assuming the Federal Reserve’s bailout of the banking institutions repo liquidity problems as a sign of a weakening global financial system, it would stand to reason that a turning point for blockchain technology might soon be on the rise.