It’s time to look beyond the doom and gloom headlines, as the companies that come out of this crisis will be stronger, better and more reliable, writes Chris Skinner.
This year is proving to be a punishing one for banks, finance, technology and fintech. Firms have seen massive downgrades of their market cap.
In addition, we have seen the demise of several US institutions, including Silicon Valley Bank (SVB) and First Republic Bank, as well as the global systemically important bank Credit Suisse.
Some say this is a crisis, but it seems more like a rebalancing. The world is experiencing a crypto winter, with many cryptocurrencies now valued at almost a tenth of what they were a year ago. We are witnessing a fintech bloodbath as even the most celebrated players in these markets, such as Stripe and Klarna, are valued at a half or even a fifth of what they were a year ago, respectively. And turbulence in the banking sector has seen some West Coast US lenders collapse and burn.
Does this mean we are seeing the end of a world of growth? No. It just means we are adjusting to a new reality.
For me, it is a very interesting time. We had a massive financial crisis 15 years ago. Some called it a global financial crisis but, in reality, it was mainly a US and European banking one. More notable was that, three years later, there was a massive European sovereign debt crisis. For those with longer memories, there was also a huge Asian financial crisis 25 years ago and, shortly after that, an internet boom and bust.
We always have crises, and what we find is that progress is created through crisis.
We have a crisis every few years. It’s nothing new. Every few years some part of our world collapses and has to rebuild, reorganise and rethink. It is the way things work.
So, the crypto winter and fintech bloodbath, combined with the collapse of some banks, can be viewed as development and evolution. The real question is: what is the outcome?
When the dust settles, and the banks and fintechs emerge afresh, it will look, and arguably be, better.
The companies that come out of this crisis will be stronger, better and more reliable purely because they came through this crisis.
It is far more preferable to focus on the opportunities while managing the risks, than focusing on the risks while missing the opportunities
The fintechs that survive will prove to be huge and hugely investible, as will the cryptocurrencies that survive. Meanwhile, the banks that are struggling are not systemic — they are one-off collapses driven by different factors. SVB suffered from poor investments and judgement; Credit Suisse suffered from misleading accounts and records; First Republic suffered from contagion and too much exposure to West Coast America’s richest people.
Will we see these problems spread?
The answer is no. These situations are all unique. That is clear with the collapse of some banks and it is clear with the newer markets of fintech.
The meltdown of fintech investment and cryptocurrency values is unusual, but not a long-term trend. Both will come back stronger. If anything, the cycle of tightening values and easy credit will make both markets stronger and more valuable.
When the dotcom bust occurred 20 years ago, some people forecast that Amazon.com would die. How wrong were they? It reminds us that, when the 2007–09 financial crisis occurred, some forecast that banking would never recover. Could they have been more wrong?
We again stand on a precipice. We can see dead banks, fintechs and cryptocurrencies, and it is too easy to look and say that we are on the brink of collapse. Instead, we should look up at the banks that are growing, the fintechs that are succeeding and the cryptocurrencies that are doing well, and ask: where do we go next?
Our world is full of opportunities and risks. It is far more preferable to focus on the opportunities while managing the risks, than focusing on the risks while missing the opportunities. So, for all the doom and gloom, you just need to bring it home to the fintechs that are surviving, the digital assets that are thriving and the banks that are striving — because there are many, if you look in the right places.
