In an interview with CNBC on Friday, Citi analyst Joseph Ayoub said that the collapse of FTX poses a threat of contagion to the entire cryptocurrency market.
On Friday, the beleaguered cryptocurrency exchange filed for Chapter 11 bankruptcy. The Citi analyst issued a warning:
“The ecosystem itself is seriously in risk of spreading further, in my opinion.”
The size of the cryptocurrency market, which is only about $830 billion compared to the $43 trillion U.S. equity market, makes it unlikely that contagion will extend to other financial markets, he continued.
Ayoub also anticipated that businesses in the cryptocurrency sector would have heightened mistrust and trust concerns, but he also pointed out that this would allow other businesses to move to seize greater market share now that one of the major players had failed.
The expert added, “Within cryptocurrencies, it’s uncertain as to how far and how deep this extends”
With the number of companies involved, the investments made in FTX, the potential for long-term contagion, and the length of the Chapter 11 process, it might take a while for this to be resolved.”
The Citi analyst disagrees with Binance CEO Changpeng Zhao (CZ), who thinks that the 2008 financial crisis, during which the government intervened with a sizable cash infusion and bailed out Wall Street, was similar to the FTX meltdown. He thought:
“While we previously believed that Sam Bankman-Fried and FTX were offering some kind of lender of last resort flexibility, it now appears that there isn’t really a big lender of last resort.”
Similar to what JPMorgan Chase analysts suggested last week, fewer players in the cryptocurrency industry are now capable of saving weaker players.
They warned that the price of bitcoin might fall to $13,000 and that “the number of businesses with better balance sheets able to salvage those with minimal capital and high leverage is dwindling.”
Before FTX filed for bankruptcy, Binance was thinking about buying the competing cryptocurrency exchange.
The business ultimately chose to back out of the agreement, citing “claims regarding mishandled customer monies and purported U.S. agency investigations,” after carrying out its due diligence.
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