Citi Analyst Warns of ‘Serious’ Contagion Risk to Crypto Ecosystem From FTX Failure
In a Friday interview with CNBC, Joseph Ayoub, Citi analyst, explained that the entire cryptocurrency market is at risk of being infected by the implosion FTX. Friday’s filing by the troubled crypto exchange for Chapter 11 bankruptcy was a warning. Citi analyst warned:
There is a risk of spreading contagion throughout the ecosystem.
He said that it was unlikely that contagion would spread to other financial markets. This is primarily due to the size of crypto, which is only $830 billion compared with the $43 trillion U.S. Equity market.
Ayoub also predicted that crypto companies will face renewed trust and skepticism, but added that this means that other firms can take market share from the big players.
The analyst explained that it was unclear how far or deep cryptocurrencies can go.
It is possible for contagion to last for a considerable amount of time. With the number of companies involved and the investments made with FTX, it could take a while for this issue to be resolved.
The Citi analyst, unlike Binance CEO Changpeng Zhao CZ, believes that the FTX crash is different from the 2008 financial crisis in which the government injected a large cash injection and rescued Wall Street. He said:
Ironic that we thought Sam Bankman-Fried or FTX were lending a lender of last recourse, it now seems that there isn’t.
JPMorgan Chase analysts similarly stated last Wednesday that less players are now able rescue weaker players in the crypto market. They wrote that ‘the number of entities with stronger balances that can rescue those with low capital or high leverage is shrinking’ and predicted that bitcoin’s price could fall to $13K.
Binance had been considering acquiring rival crypto exchange FTX before it filed for bankruptcy. After thorough due diligence, however, the company decided to renege on the deal , citing reports regarding mishandled customer funds, and alleged U.S. Agency investigations.