Bail-in Imminent for Italian Banking Sector; Can Bitcoin Rise to the Occasion?
Global markets are becoming increasingly concerned about the state of Italian banking sector, adding to pressures weighing on confidence from the recent Brexit decision. Bad debts held by Italian banks total around €360 million which is equal to roughly 20 percent of the country’s GDP, which measures the total value of goods and services produced. But even worse, this number has increased from the global financial crisis in 2008, which could push the government to do something drastic.
As a result of their bad debt, Italian bank stocks have slumped and the government is now considering a ‘bail-in’, which is where banks’ creditors take a ‘haircut’ before taxpayers money is used to recapitalize the banks. However, such an action would be against European Union rules, and the government has appealed the E.U. saying that the retail purchasers of these bonds are small and naive savers. However, in 2015 the Italian government rescued four banks and the creditors of these banks had to bear the brunt of the costs, to the value of €334,500 per bondholder. This could have just been a warm-up for a wider scale ‘bail-in’ to prop up their failing banks.
A similar situation in Cyprus was one of the contributing factors in Bitcoin’s massive price rise in 2012, when European officials suggested that the governments could directly take money out of depositors’ accounts. In panic, Cypriots flocked to ATM’s to withdraw their cash. The price of Bitcoin rose 87 percent in the fortnight following the bail-in measures in Cyprus.
Also, further collapse of the Italian banking sector will make investors nervous about the future of the Eurozone and see lots of selling interest in the Euro. Global stocks are also likely to be depressed in response. New money driving Bitcoin higher or see an intensification of bullish sentiment by market participants will then follow. Holding Bitcoin is the equivalent of hiding gold bars under your mattress and may strike Italians as a stark contrast to the Euro, which the government are able to confiscate if the situation worsens; taxpayer money may end up being on the line to save these banks.
XBT-EUR is up just over 2 percent on Monday’s open on the Kraken exchange and could benefit from increased worries over the Italian economy and the future of the Eurozone. The upcoming November referendum could see Italy be the second country to exit the European Union; roughly 40 percent of the population is in favor of leaving.
Therefore, XBT-EUR is set to appreciate as this development will likely dominate market sentiment during the beginning of next week. XBT-EUR is currently sitting above the critical €600 handle. A worsening situation will see the Euro slump and increasing buying interest in XBT-EUR and looks to test recent highs around €680. Also, the weakening of European integration may casts doubts over the future of the Euro.
There are several ways Italians could get into Bitcoin. Firstly, there are eleven Bitcoin ATM’s around the country, although mainly concentrated in the north. Moreover, exchanges such as BitStamp allow purchase via credit card. There are also several movements in Italy where people can participate in the Bitcoin community and transact directly with local traders, such as Bitcoin Generation.
The potential for a “bail-in” by the Italian authorities could encourage citizens of other high-debt European countries, namely Spain, Portugal and Greece, to seek safety in Bitcoin. However, it is likely that the E.U. will allow a bail-in to save Italy and the rest of the Eurozone; if individuals were to foot the bill, anti-Europe sentiment would grow and possibly see Italy exit in November. On the other hand, this avenue would set a bad precedent and create a moral hazard in the Eurozone, which would undermine the Euro and benefit Bitcoin.