Global banks believe that crypto markets have yet to bottom out with more pain to be felt later this year. Nonetheless, adoption by major players in the industry continues to be on the rise.
After peaking at around November last year, cryptocurrencies plunged and wiped out around $2 trillion in total market capitalization, according to data from CoinMarketCap.com.
While price movements have been relatively stable in the last month, staying close to the $900 billion level, bad news persists for the nascent market. Last week, Celsius Network filed for bankruptcy while US courts rewarded a subpoena for the founders of Three Arrows Capital whose whereabouts remain unknown.
What say the banks?
Deleveraging Cycle
Liquidity pressures being witnessed at various crypto firms are indicative of deleveraging taking place in the broader market.
According to DBS in a webinar earlier this month attended by finews.asia, investors are advised to stay on the sidelines for the time being due to the rapid unwinding caused by «amplified leverage» in structures such as the popular decentralized finance (DeFi) products that promised yields as high as 17 percent.
Although J.P. Morgan is relatively more positive, recently calling a near-end to the crypto deleveraging cycle, it sees other challenges to sentiments such as the drop in Bitcoin production cost from $24,000 at the start of June to around $13,000 now.
«While clearly helping miners’ profitability and potentially reducing pressures on miners to sell Bitcoin holdings to raise liquidity or for deleveraging, the decline in the production cost might be perceived as negative for the Bitcoin price outlook going forward,» said J.P. Morgan in a note by strategists led by Nikolaos Panigirtzoglou. «The production cost is perceived by some market participants as the lower bound of the Bitcoin’s price range in a bear market.»
Mt Gox Release
In addition to leverage and sentiment risk, cryptocurrencies are also scheduled to face a major market event in August: the release of over 135,000 bitcoin from Mt Gox.
The Tokyo-based exchange suffered one of the most high-profile crypto failures in 2014 which led to the disappearance of nearly 850,000 bitcoin. In late 2021, plans were announced to return lost funds to creditors and they were recently given the option to be paid out either in bitcoin or US dollars. With bitcoin’s value at the time it was lost at less than 5 percent of its current value, there are fears that many will choose the latter option and trigger more downside.
«The fear is that this could cause a substantial quantity of BTC to come to the market and drive further selling pressure for the leading digital asset. This comes at a time when the market mood remains very bearish, meaning that more negative news could be taken as a trigger for further selling,» said Julius Baer’s next generation analyst Sipho Arntzen. «With intra-crypto correlations remaining elevated in recent weeks, any pressure on BTC would also likely have ripple effects for the broader asset class.»
Adoption Persists
Despite continued turbulence for crypto markets, adoption amongst banks persists, illustrating the long-term optimism of top industry players.
Citi, for example, announced in June a tie-up to establish a digital asset custody platform with Switzerland-headquartered crypto firm Metaco, also a partner to rival banks like Standard Chartered and DBS. Closer to home, Goldman Sachs announced that it successfully executed its first bitcoin futures trade in Asia this month with crypto trading firm Cumberland DRW via intermediary GFI Securities.
