Jim Cramer blasts crypto bank’s ‘dangerous’ $4.3 billion bailout – here’s how to prepare for a complete collapse of confidence in crypto
Facing a wave of withdrawals from cautious investors, a crypto-friendly bank is staying solvent thanks to an unusual billion-dollar loan — a move Jim Cramer says will make you leave your chair.
“This is phenomenal,” the Mad Money host and crypto skeptic tweeted last week. “A bailout loan from the Federal Home Loan Bank for a crypto bank to stop this activity. I wish people knew how dangerous things are getting. NO business as usual.
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The bank’s withdrawal — and the surprising rescue of a quasi-government “home loan” institution — is a sign of further uncertainty for crypto investors after a short period of time. catastrophic 2022, witness The collapse of the major exchange FTX and worst performance of the crypto market since 2018.
If you are worried that the bell is ringing Again for cryptocurrencies, it may be wise to investigate how investors can prepare for a deeper fall.
‘crisis of confidence’
Cramer vehemently protested after Silvergate Capital Corp. — a California-based bank that provides financial services to the digital asset industry — seeks $4.3 billion in loans to weather the “worldwide crisis of confidence.” [crypto] ecosystem” at the end of last year.
How bad is the crisis? Silvergate saw total deposits from their digital asset customers plummet from $11.9 billion on September 30 to just $3.8 billion on December 31, company profile only.
Silvergate CEO Alan Lane explained: “In response to the rapid changes in the digital asset industry during the fourth quarter, we took commensurate steps to ensure that we are maintaining our integrity. cash liquidity to meet potential deposit flows”.
Those steps included selling $5.2 billion in debt securities (with a $718 million loss) but also seeking a large loan from the Federal Home Loan Bank of San Francisco — a government-owned business. government funding established during the Great Recession to support mortgage lending and community investing.
Why is the loan so unusual?
The Federal Home Loan Banking (FHLB) system is comprised of 11 regional banks that are privately capitalized — meaning they do not receive taxpayer assistance — and are owned as cooperatives by members. including banks, credit unions, insurance companies and community development financial institutions. Institutions.
The system is administered by the Federal Housing Finance Agency and provides access to billions of dollars in low-cost funding to members through secured loans.
Like report via American bankerCritics like Cramer argue that the FHLB’s loan to the crypto-friendly Silvergate is a big departure from its original mission.
Todd Phillips, a policy advocate in Washington and a former attorney for the Federal Deposit Insurance Corporation, said: “It’s clear that they’re not using the money to make a home loan, they’re doing it. Use it to build your capital.
“Why would the Federal Home Loan Bank lend them this money? It makes no sense at all.”
Last year, the Federal Housing Finance Agency launched its first major review of the FHLB system in 90 years, probing whether it has strayed from its core mission of housing finance. Today, many community banks rely on FHLB for liquidity management and general balance sheets, even without a direct connection to housing.
While the FHLB spokesperson said American banker that no taxpayer money was used to finance the Silvergate loan, the bailout shed light on the fragility of the crypto market for investors.
READ MORE: 4 Simple Ways To Protect Your Money From Soaring Inflation (Without Being a Stock Market Genius)
‘I won’t touch crypto for another million years’
This is not the first time Cramer has sounded the alarm about the crypto ecosystem.
After the massive collapse of FTX in November, he shared a scathing commentary on CNBC about the value of digital assets — and the wisdom of those who own them.
“I sold all my crypto… I won’t touch crypto in a million years because I don’t trust the bank of deposit,” he said. speak. “If you have money in [crypto], I don’t call you an idiot; I’m just saying that you have blind faith.”
Multinational investment bank Standard Chartered has warned investors that the crypto sector is likely to continue to face challenges into early 2023, potentially leading to more liquidity problems and bankrupt.
The bitcoin price has dropped by nearly 65% in 2022, and Standard Chartered says the asset could drop another 70% to around $5,000 by 2023.
How to Prepare for a Deeper Crypto Crash
Certainly, the cryptocurrency market is famous for its volatility.
Enthusiasts ready stay in the process because of the enormous growth potential, but for many investors, the reduction, reduction, avoidance and avoidance are not worth the stress.
If you think a deeper crypto crash may be imminent, here are three ways to manage your risk:
1. The 1% Rule
Feeling burned from the wild swings of the crypto market? The 1% rule can keep your capital loss to a minimum, while still allowing for a profit or monthly income.
This strategy, also known as position sizing, is not about the size of your investment but the amount of capital you are willing to risk. It limits the risk on any given cryptocurrency investment or trade to no more than 1% of your total investment.
For example, if you have $20,000 to invest, you can buy $200 of any particular cryptocurrency. If the price of that asset drops to $0, you will only lose 1% of your total capital.
2. Stop Loss and Take Profit orders
Stop-loss orders can limit your losses if your crypto trades go awry.
Investors can place a stop loss order to buy or sell cryptocurrencies assets when they reach a specific price, known as the stop price. This helps to establish an exit point in the market and can limit losses.
For example, instead of following the 1% rule, you could buy $20,000 of any particular cryptocurrency, with a stop loss to sell at $19,800. That will effectively cut your losses at 1% of your total invested capital.
If you have any luck with your crypto investments, you can also close your winnings with a take profit order — an instrument designed to sell an asset after it reaches a certain level. certain profit.
3. Take control of your assets
FTX’s shocking collapse leaves many crypto investors unsure if they’ll ever see their money again — highlighting some of the potential pitfalls of holding crypto on an exchange .
Investors may consider using a non-custodial crypto wallet where they have full control over their digital assets and personal data.
At the same time, these wallets also come with risks. They don’t tolerate errors like lost passwords (also known as “private keys”) or software bugs.
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This article is for information only and should not be construed as advice. It is provided without warranty of any kind.
