FTX Collapse May Extend Cryptocurrency Market Until End of 2023: Coinbase

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Just as the cryptocurrency market began to see an “evolving positive structure” after significant deleveraging in May and June left several marginal sellers in the ecosystem, the space took another hit after the collapse of once-mighty cryptocurrency exchange FTX. The According to a recent study, the rapid fall of FTX will expand the cryptocurrency market for a few more months or possibly until the end of 2023. report by Coinbase Global (COIN).

Sam Bankman-Fried’s FTX, once the world’s second-largest cryptocurrency by trading volume and valued at $32 billion, filed for Chapter 11 bankruptcy protection in the U.S. last week after revealing an $8 billion balance sheet deficit. among other missteps such as misjudging users’ margins, this led to massive outages. Coinbase said the week-long slump has fueled growing concerns about potential systemic risk, leaving the sector vulnerable amid a lack of large buyers.

While FTX’s bankruptcy proceedings are being closely watched, Coinbase noted that the direction of the cryptocurrency class will also depend on how the Federal Reserve’s interest rate policy plays out. With inflation still unusually high and the labor market remaining tight, it is “too early for the Fed to pivot,” the centralized cryptocurrency exchange claims.

Nevertheless, current efforts to make exchanges more transparent (proof of reserves), regulatory cooperation and helping investigators recover any missing client funds “are important steps to take and will affect the market more than certain macroeconomic factors,” Vincenzo CohnReznick of Restructuring Advisory and Toppi, a partner in the Dispute Resolution Practice, reported the search for Alpha via email.

Coinbase said the cryptocurrency space expects “secondary effects” to emerge after the opening of FTX, as “it emerges which parties may lend or interact with FTX or Alameda and what those exact liabilities are.” Remember that Alameda Research was the quantitative trading firm that played a key role in the downfall of SBF’s 30-year-old crypto empire.

Bradley Duke, founder and CEO of ETC Group, agreed with Coinbase’s assessment, saying, “There is little doubt that the collapse of FTX will delay the crypto spring,” adding, “Investor confidence in crypto has taken a serious hit, and the aftermath of this event “There will be tremors. It will continue to be felt for some time.”

The Brian Armstrong-led firm also believes that poor liquidity conditions could continue until at least the end of 2022, as the dominance of stablecoins (digital tokens whose value is tied to another asset such as the US dollar) continues to take a larger share of the downturn. cryptocurrency market capitalization now stands at 18%, up from around 5% in October 2021.

Elsewhere in cryptocurrency, the bitcoin (BTC-USD) mining landscape was suffering long before the FTX drop, as rising network hashrates and falling BTC prices along with energy costs are squeezing miner profitability. However, a number of BTC miners have disclosed liquidity issues in recent weeks, including Core Scientific (CORZ), Argo Blockchain (ARBK) (OTCQX:ARBKF), and Iris Energy (IREN). The FTX debacle has undoubtedly damaged investor confidence in the space, which could further hurt token prices, thereby putting pressure on miner margins.

Meanwhile, the price of bitcoin (BTC-USD) has fallen 20% The FTX turmoil started a week ago, trading at $16.58K on Friday afternoon. “The capitulation to BTC will depend on the scale of the FTX contagion,” Khaleelulla Baig, founder and CEO of KoinBasket, told Seeking Alpha.

Baig sees a “worst-case scenario” for bitcoin (BTC-USD) potentially below $10,000, noting that “while the long-term outlook looks intact, the short-term implications are clearly negative. The FTX fiasco pushed the entire ecosystem back at least a few years.

Earlier (November 17), the new head of the FTX, John Ray III, condemned the exchange under the leadership of the SBF, calling its poor management practices worse than Enron.

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