While reffering to the ongoing crypto market chaos, a Citi analyst has expressed concern about a serious danger of broader “contagion” to the crypto ecosystem, saying that the ‘contagion’ can linger for a long time. He continued by saying that the cryptocurrency sector lacks a sizable lender of last resort.
The size of the cryptocurrency market, which is only about $830 billion compared to the $43 trillion U.S. equity market, makes it improbable that the “contagion” will spread to other financial markets, he added.
Companies in the cryptocurrency sector will face fresh conflicts and trust concerns, according to Citi analyst Joseph Ayoub, who also stated that now that one of the main players has failed, other businesses can attempt to increase their market share.
He also thinks that the 2008 financial crisis, in which Wall Street was bailed out by the government with a substantial cash infusion, was different from the FTX catastrophe.
Citi analysts are saying exactly what JPMorgan Chase analysts suggested last week— fewer players in the cryptocurrency industry are now capable of saving weaker players.
The price of bitcoin is expected to drop to $13,500 due to the decreasing number of organizations with strong balance sheets that can help those with low capital and excessive leverage. It is currently trading at $16,727 down 0.91%.
In its October report, Citi bank said that decentralized cryptocurrency exchanges (DEXs) have developed more quickly than centralized exchanges (CEXs) during the previous two years. Users leaving centralized systems to escape their more rigorous know-your-customer protocols is expected to increase the divide.
The current market turmoil due to the fall of cryptocurrency exchange FTX will also invite accelerated efforts to develop a regulatory rule book for crypto players.