An FTX collapse has extended the broader crypto downturn but this time around, global banks appear relatively more positive about the longer-term outlook, illustrating the recent woes as a net positive for overall market development.
While the collapse of FTX did not trigger a sharp decline, cryptocurrencies are still gradually trending lower to around $800 billion in market capitalization, according to CoinMarketCap data, marking the lowest level in nearly two years.
Market volatility, regulatory uncertainty and lack of intrinsic value have historically been cited as staple reasons against adoption. But this time around, global bank sentiments appear to be more positive despite revelations that new FTX CEO and ex-Enron liquidator John J Ray III called a failure of controls and untrustworthy financial information at levels he had never witnessed before.
Regulatory Impetus
The major driver of bank optimism highlighted has been the even greater potential for tighter and clearer regulations – a factor that would mitigate risk to be more attractive to traditional financial institutions. Steven Alexopoulos, an equity analyst at JPMorgan – once the financial industry’s most vocal crypto bear – described the recent downfall of FTX as «one step back […] two steps forward» which could result in an accelerated timeline for crypto regulations.
«In fact, we see the establishment of a regulatory framework as the needed catalyst to massively ramp the institutional adoption of crypto,» Alexopoulos said in a recent note. «Moreover, while the news of the collapse of FTX is empowering crypto skeptics, we would point out that all of the recent collapses in the crypto ecosystem have been from centralized players and not from decentralized protocols.»
«[W]e continue to argue that regulators should quickly require crypto companies to comply with the rules imposed on traditional investment products,» echoed Deutsche Bank macro strategist Marion Laboure in a social media post. «Although investors have suffered significant losses, we believe this second crypto winter will be a net positive because the FTX collapse will edge the crypto ecosystem closer to the established financial sector.»
Timeline Unknown
Despite the positive outlook, the current crypto winter has nonetheless done damage to broader investor confidence and the timeline for a rebound has likely been extended.
«The confidence in cryptos is more shattered than ever, suggesting that the wounds of the current crisis will take much more time to heal,» according to a note authored by Carsten Menke, head of next generation research at Julius Baer. «The still existent long-term potential of digital assets due to their underlying blockchain technology has for now firmly moved out of focus.»
«Part of the rise of digital assets has been driven by too much liquidity everywhere. Currently, [cryptocurrencies] are part of this liquidity withdrawal,» said J. Safra Sarasin CIO Philipp Baertschi. «But we think that crypto digital assets are interesting in the long-term. I wouldn’t expect a quick rebound but I think there is a place for crypto assets.»
Winner is Binance
While the total size of the market and its trajectory has been hit, the market share leader – Binance – has come out at the top by further widening the gap with its competitors.
«Market concentration is greater than ever, with Binance being the biggest winner,» said Laboure.
«Binance has effectively cemented itself as crypto supreme for the foreseeable future unless it plays its regulatory card wrong,» added Kelly Chia, equity research analyst Asia at Julius Baer.
