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According to Coinbase’s recently released monthly outlook, the FTX crisis could lead to a longer winter for the cryptocurrency market than previously expected. Coinbase’s report confirms what was highlighted in previous news reports that there are many counterparties that have interacted with or lent money to Alameda or FTX, which could lead to further crypto market suffering. indicates that
According to a Coinbase report, the FTX crisis has caused investors to lose confidence in the cryptocurrency platform, creating a liquidity crisis within the cryptocurrency market that could easily spread through the end of 2023. in the crypto ecosystem.
Many institutional and retail investors who cashed out on FTX have their funds stuck on the exchange after filing for bankruptcy on November 11th.
FTX’s bankruptcy proceedings may involve significant legal complications, and may also limit the potential for contagion as courts seek a safe outcome.
FTX’s bankruptcy will be watched closely as the whole drama surrounding FTX has disrupted a new positive comeback since Terra Luna’s collapse, but much of the crypto industry is dependent on the US Federal Reserve rate movements. I’m here.
Bid-ask spreads on most cryptocurrency platforms have already widened as market makers who used FTX as a liquidity pool feel less confident trading on FTX.
In a report, Coinbase said:
We believe the low liquidity situation may continue at least until the end of the year. It dropped to $100 million and climbed to a very high 18% of the total cryptocurrency market capitalization.
In addition to the lack of confidence among investors and the liquidity crisis, the crypto market has also witnessed extremely high volatility levels considering the volume of withdrawals being witnessed across crypto platforms due to fear.
For example, Bitcoin volatility rose to 66% after an increase in Bitcoin outflows from exchanges. This is close to what was seen in his end of June after the Celsius and Three Arrow Capital crisis.
The majority of cryptocurrencies, including Ethereum (ETH) and Bitcoin (BTC), have already abandoned their previous gains.
In conclusion, Coinbase has found that the market will take time to recover from the current situation.
Exchange notes in the report:
A correction will take time and it is very likely that this will extend the crypto winter for a few more months, possibly through the end of 2023. “It will be a difficult market anyway, as we still need to consider that the economy is likely to slip into a recession.”
Tough conditions within the crypto space, plus policy tightening in the US and a strong dollar, are making it increasingly difficult for investors to hold long positions in crypto and other high-risk markets.
