Pedro Machado, the European Central Bank (ECB) supervisor, has flagged a potential risk from the Middle East conflict. The same risk is likely to impact the crypto market, influencing its recently caught up growth over 24 hours. The ECB is currently shifting its focus to synthetic securitization.
Risks According to ECB Supervisor
The ECB supervisor has highlighted that there is indirect and limited exposure to Euro zone banks. However, the maximum possible risk stems from the rising prices of energy. The conflict in the Middle East has brought the Strait of Hormuz under pressure. It is estimated that blocking the route could impact the supply globally. Thereby, triggering significantly higher prices.
Machado has estimated that the direct exposure is small relative to their ability to absorb losses. This is 0.7% and 0.6% for core capital of assets and liabilities. He has added that the exposure remains pretty contained even after including the neighboring countries.
The ECB supervisor has not quantified numbers for individual banks per the communication policy. But, he has estimated that inflation could spike if energy prices keep rising in the long-term.
Impact on Crypto Market
The crypto market has made a recovery in the last 24 hours. For instance, BTC has not only reclaimed the $70k margin, but it is now trading at $72,866.47, up by 2.54% during the said timeline.
Even ETH, the second-ranked crypto in terms of the market cap, has surpassed the $2k mark to trade at $2,135.22 when the article is being drafted. Notably, Ethereum tokens have grown by 4%, more than bitcoins.
Higher inflation could divert investors to a safer alternative. This could bring down the sentiments in the crypto market. The FGI has shifted to 29 points, more towards the green section – there remains a possibility that it retraces back closer to 10 points.
Focus of ECB
Circling back to the ECB, Machado has said that the attention is now on focusing on synthetic securitization. This is where banks shift the portfolio risk to outside investors using guarantees or derivatives. The end goal is to navigate a way around the ongoing situation and ensure that the risk does not run back to the banking system.
Per Reuters, synthetic risk-transfer rose by 85% in the first half of the last year, that is 2025, from the previous year.
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