The past 7-8 years of study of the Bitcoin market has made one thing very clear to people around the world. Bitcoin and its underlying technology are here to stay and are slowly transforming the technological and financial sector, one step at a time. Interestingly, the digital currency’s adoption was more visible in the face of global crises. Whenever there is a massive event, that impacted a chain of markets pertaining to particular geography or a common asset class, Bitcoin always came to the rescue. Various events like ‘Brexit’ or fears of ‘Grexit’ and other cases that put conventional markets in danger showcased this feature. The adoption manifested in the form of increased volumes, prices and inflow of funds making Bitcoin the new ‘Safe Haven’. With prices now sideways between $700 and $750, let’s look into how Italian Banking Bail-in might send the prices further higher:
Problem with the Italian Banks:
Italy’s banking system is beginning to implode starting with Monte dei Paschi, Italy’s third-largest bank. Italian banks dropped as much as 7.1 percent over the past few quarters according to Bloomberg. UniCredit SpA slipped 0.3 percent in Milan, while Intesa Sanpaolo SpA decreased 0.6 percent, recovering from earlier lows. Monte Paschi’s 379 million euros ($418 million) of 5.6 percent subordinated bonds fell 3 cents to about 20 cents last quarter. Hence the bad debt situation has been a concern for the government and has also become politically sensitive topic.
How Italy plans to counter the situation:
The Banking Bail-in is really sensitive and a lot of things depend upon how this would be handled. Especially because majority of the investors in the banking bonds are retailers or average household members. Any conflicting element would prove detrimental to their interest and would defy the rules laid down by EU when it comes to bail-ins. A complete bail in would hurt all the retail bond holders and savings account holders. As such Italy can’t turn away from this crisis without a Bail-in, how they would strike a middle ground is now left to speculation.
What this means for Bitcoin:
As Monte Paschi tries to recapitalize, the Italian market will surely react. If the restructuring ends up in the same way as Cyprus and Greece, the resulting volatility might last through a year. In the case of Cyprus, Bitcoin values grew tenfold as an economic panic set in making it the newest of virtual safety nets. Due to the looming fears of Grexit, Bitcoin peaked to an annual high last summer. In June, the “Brexit” vote forced the British Pound to drop over 10 percent, and this market value quickly captured by Bitcoin, with the spike ranging over $100. Hence people should lookout for news pertaining to the bail-in while investing in Bitcoin markets for the coming weeks.