I fear you're misinformed. Besides localBitcoins, how does one get fiat to an exchange?
That's right — a bank. Exchanges like Bitfinex only survive because of things like Tether, which requires other fiat accepting exchanges.
If all exchanges were like Bitfinex, there would be a liquidity crunch, as the OP is saying.
When banks refuse to deal with an exchange like Bitfinex, it has nothing to do with liquidity concerns. It's because banks are required by law to verify who they are transferring money to (AML/KYC), and they don't believe Bitfinex abides by those laws (they are right).
BTW, Bitfinex recently reopened bank deposits and withdrawals.
Although that would be incorrect, there still are valid fears for a liquidity crunch, as I stated. This, regardless of why (be it laws or fund availability) does create a concern due to liquidity.
> BTW, Bitfinex recently reopened bank deposits and withdrawals.
Clearly not true. Especially for U.S. customers: https://www.bitfinex.com/posts/227
Also, if the Fed barred any Bitcoin sales/buys with USD (however unlikely) almost all reputable bank would drop those as well, regardless of country. This has been discussed in detail on r/BitcoinMarkets, actually.
I deposit USD to an exchange...then use that USD to place a Bitcoin buy order. Then I sell some Bitcoin another buyer on the exchange, who was only able to make this transaction happen because they too deposited USD or fiat into their account.
I get the money, they get the Bitcoin. Who is getting screwed?
LocalBitcoins would become a seller or buyers only recourse, for U.S. customers anyway, which takes a lot of coordination/time, and essentially becomes an obvious form of money laundering.
This doesn't seem like a fundamental problem due to the structure of Bitcoin or exchanges.
You are misinformed. The people who provide the dollars to this market are the customers of the exchanges. It seems like you are not familiar with how a currency exchange works.
A currency exchange does not buy or sell the currencies traded at the exchange. All it does is match buyers with sellers, like an auction house. Buyers must deposit all the dollars that they use to buy before buying, and sellers must deposit all the bitcoins they sell before selling. When someone withdraws dollars after selling, the exchange simply transfers to them the dollars that the buyer deposited earlier. It already has the dollars on hand and does not need to borrow them from a bank, ever.
Now, not all places you can sell Bitcoin for dollars are currency exchanges. There are also brokers that do trade directly with their customers, rather than matching customers together to trade. In fact, Coinbase provides this service. However, they can simply obtain dollars by trading at currency exchanges themselves, and they adjust the price they offer to match the exchange price (plus a fee) so they can't just run out of money. Again, there is no need to borrow dollars from a bank. Furthermore, trading volumes at true currency exchanges absolutely dwarf the volume of any Bitcoin broker.
All that said, nothing prevents a crash in the Bitcoin price. If too many people want to sell and not enough want to buy, the price will go down a lot. But this is true in any market, and it has nothing at all to do with bank lending. Not even a little bit.