Prime
The crash of FTX and the resulting Chapter 11 filings took a massive toll on crypto assets over the past week, sending the bitcoin price down.BTC-USD) is down 21% and has lost nearly $82 billion in market capitalization since Nov.
JP Morgan Strategists, led by Nikolaos Panigirtzoglou, say this new phase of crypto debt forgiveness, triggered by the demise of FTX and its sister company Alameda Researchis problematic because “the number of institutions with stronger balance sheets that can rescue those with low capital and high leverage is shrinking in the crypto ecosystem.”
Due to the collapse of FTX, investors and regulators are likely to pressure crypto businesses to disclose more information about their balance sheets, in order to protect their assets. customers and limit the concentration of assets. Meanwhile, crypto market participants are likely to adopt more diligent risk management, including counterparty risk management, JP Morgan strategists said.
They expect it to take several weeks for the average delete cycle to peak, but “the crypto market cap is likely to be smaller than the post-Terra period due to the enhanced average delete taking place before Alameda/ FTX collapsed,” said Panigirtzoglou and colleagues.
Note that as of May 2022, the Terra coin (LUNA-USD) cratered in May as sister token TerraUSD (UST-USD), an algorithmic stablecoin, has lost its peg to the dollar.
“The FTX bankruptcy would be a classic example of ‘short-term pain, long-term gain’,” said GlobalData analyst Suneet Muru. “It will reduce the crypto market capitalization over the next few months, but will force exchanges to redesign their business models towards effective risk management.” The analyst also said exchanges must show that they are not like banks and need to keep less cryptocurrencies on their books.
Bitcoin price (BTC-USD) could drop 25% from Nov. 9 (when the note was written; BTC price is ~$17.6K0), JP Morgan strategists said. When looking at the potential downside, the cost of producing bitcoin has historically acted as a floor for the token’s price. “Currently, this cost of production stands at $15k but it is likely to fall back to the $13k lows seen in the summer months, meaning a drop of around 25k from here,” they said. %”.
Morgan Stanley strategists Sheena Shah and Kinji Steimetz agree that there is still too much leverage in the crypto ecosystem. They wrote in a note to clients: “We are in the midst of another write-off in the crypto ecosystem and so far it is having limited spillover to the broader stock markets beyond. sentiment, when crypto institutions lend money to each other”.
They expect another round of crypto-quantitative tightening, “with the liabilities revealed in the coming weeks. These creditors are now selling crypto assets to cover risk, adding to volatility. action,” said Morgan Stanley strategist.
Bitcoin (BTC-USD) The bear market that began more than a year ago was the result of mostly institutional selling, Shah and Steimetz said. They hope that retail investors can start selling if BTC trades below $10K.
Morgan Stanley analysts assessed the impact on a number of related stocks, which they include:
- Analyst Mike Cyprys wrote that FTX troubles could bode well for long-standing incumbents like Nasdaq (NASDAQ:NDAQ) and CBOE Global (BATS:CBOE) is “entering the digital asset ecosystem and bringing with it decades of experience in market operations and risk management.”
- Robinhood Market (NASDAQ:HOOD) is likely to see increased trading through its app in the near term as the volatility of the cryptocurrency drives volume. “But once volatility subsides, we could see a more challenging market landscape weigh on HOOD’s crypto trading revenue,” Cyprys said.
- For Silvergate Capital (NYSE:SI), analyst Manan Gosalia considers direct and indirect cash flow a top concern, “which will affect both margins and net interest income, as Silvergate’s primary source of revenue is earnings. spread from the deposits held by their clients.” Digital asset exchanges accounted for ~64% of SI’s total deposits as of Q3 2022, he said. And according to the company’s latest 10-K, its 10 biggest depositors account for ~45% of total deposits. Gosalia said it’s likely that FTX is included in that share.
- Analyst Mia Nagasaka expects that FTX has little direct impact on Monex Group (OTCPK: MNXBF) basic rules. However, “the bottom line for Monex is that if a major global player like Binance expands their presence in Japan, we see a risk of fee compression outside of the US, which we would like to monitor. tight developments.”
SA Contributor takes a look at Solana (SOL-USD), fell 52% in the past week, indicating concern for the FTX crossfire external network.
