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In a recent interview Citi Analyst, Joseph Ayoub, warned that the overall cryptocurrency market faces risks of contagion from the FTX collapse. He said that the contagion “can last for a significant amount of time.” And the crypto industry looks like it has “no significant lender of last resort. I think there’s a serious risk of broader contagion to the ecosystem itself.”
Mr. Ayoub added that “I don’t see a lot of spillover and contagion in traditional markets, but we have yet to find that out, yet to be thoroughly investigated. Trust is gained over a decade but lost in an instant,”
He moreover shared his thoughts and added “It’s unlikely that contagion spreads toward broader financial markets, and that’s mainly because of the size of the crypto space, which is only around $830 billion in comparison to the $43 trillion U.S. equity market.”
On the other hand, Mr. Ayoub predicted that all crypto firms will face renewed skepticism and trust issues, but observed that it further means other firms can move to capture more market share now that one of the biggest players has gone under.
The Citi Analyst expressed that “Within cryptocurrencies, it’s unclear as to how far and how deep this goes. Contagion can last for a significant amount of time, and with the amount of companies that are involved and the amount of investments involved with FTX, and following Chapter 11, it could take a long time for this to resolve.”
Opposing the belief of Binance CEO, Changpeng Zhao (CZ), Mr. Ayoup, said that the FTX collapse is different from the 2008 financial crisis when the government stepped in with a massive cash injection and bailed out Wall Street. He said “It almost seems ironic now that we were previously thinking that Sam Bankman-Fried and FTX were providing some sort of lender of last resort optionality… and now it seems there is no significant lender of last resort.”
Other Analyst’s Opinion
JPMorgan Chase’s analysts said in the previous week that “The number of entities with stronger balance sheets able to rescue those with low capital and high leverage is shrinking,” they penned while predicting the price of Bitcoin could drop to $13K.
It must be noted that before FTX filed for Chapter 11 bankruptcy, Binance was about to acquire the rival crypto exchange. But after conducting due diligence, the crypto exchange decided to walk away from the deal, and gave the reason that “reports regarding mishandled customer funds and alleged U.S. agency investigations.”
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
