Elon Musk Shares Warning about the Banking Crisis – Bitcoin to become “Freedom Money”?
In a recent tweet, Elon Musk, the CEO of Tesla, expressed concerns about the "most serious looming issue" in the banking system.
Musk was responding to an analysis by The Kobeissi Letter, which highlighted that more than $2.5 trillion in commercial real estate debt will come due in the next five years, the most significant amount in history.
This is by far the most serious looming issue. Mortgages too.
— Elon Musk (@elonmusk) March 27, 2023
Small banks in crisis
Small banks are currently struggling badly and are at the center of this crisis since they make 70% of commercial real estate loans.
Refinancing these loans will be expensive, given that commercial real estate is only 60-70% occupied. At the same time, interest rates have more than doubled.
Falling retail mortgage bond prices have become a growing problem for smaller banks, which are already suffering from declining demand for commercial real estate and fleeing depositors.
Risk of a financial crisis
Most of this debt was financed when prime rates were near zero, and this debt must be refinanced in an environment where interest rates are higher, values are lower, and the market is less liquid. This problematic situation could lead to a major new financial crisis as refinancing loans under these conditions is extremely expensive and risky.
Experts warn of a serious systemic crisis in the banking system, primarily regional banks.
Turning point for Bitcoin
The banking crisis could be a turning point for Bitcoin, as has already been demonstrated with the collapse of Silicon Valley Bank (SVB). As the banking crisis unfolds, possibly surpassing the great financial crisis of 2008 that led to the creation of BTC, the need for a decentralized, permission-free “freedom money” may become more apparent to many.
If banks continue to fall like dominoes, this will likely significantly impact the value of Bitcoin. People may turn to the asset to protect their wealth as the crypto turns into a “higher beta version of gold” in the face of the banking crisis.
Federal Reserve’s role
The US Federal Reserve (Fed) is also playing an essential role in the crisis by raising interest rates too quickly.
Scott Rechler, Chairman & CEO of RXR and Director at the NY Fed, calls for a program “that provides lenders the leeway and the flexibility from regulators to work with borrowers to develop responsible, constructive refinancing plans.”
There is $1.5T in commercial real estate debt maturing in the next 3 years. The bulk of this debt was financed when base interest rates were near zero. This debt needs to be refinanced in an environment where rates are higher, values are lower, & in a market with less liquidity.
— Scott Rechler (@ScottRechler) March 22, 2023
Rechner warns of a severe systemic crisis in the banking system, especially in regional banks, and calls for slowing the train down and taking the proper precautions to minimize the damage.
The looming banking crisis highlighted by Elon Musk and The Kobeissi Letter is a significant concern, especially for small banks. Refinancing loans under the current conditions is expensive and risky and could lead to serious consequences.
The need for a decentralized, permission-free currency like Bitcoin may become more evident to many if banks continue to fall. It remains to be seen how the Federal Reserve will address the crisis and whether it will provide lenders the leeway to work with borrowers to develop responsible, constructive refinancing plans.