On Wednesday, JP Morgan said in a report that the fall of crypto hedge fund, Three Arrows Capital (3AC) indicates that the consequences of this year’s cryptocurrency market drop keep on echoing.
While it is hard to assess the amount needed to be corrected, the bank said, its indicators propose the cycle has already advanced.
Different failures among companies in the industry shouldn’t surprise given the backdrop of the 70% drop in digital asset market capitalization since November. As per the report, the failure of funds like the 3AC fund is part of the crypto market correction. This makes the market (at the bottom) more volatile.
“Whether it is miners having borrowed to expand operations using their bitcoin as collateral, corporates such as MicroStrategy (MSTR) having borrowed in the past to invest even more heavily into bitcoin, or hedge funds using futures to lever their positions, or retail investors borrowing via margin accounts to invest in various cryptocurrencies.”
JPMorgan recognizes two reasons to propose that the cycle may not be exceptionally protracted:
1. The fact that more grounded crypto companies with more hearty balance sheets are stepping in to assist with containing the fall
2. The healthy pace of venture capital (VC) funding, is an important source of capital for the digital assets ecosystem.
Crypto companies with high leverage and low cash, are the most challenged right now. Alternately, those with the healthiest balance sheets are probably going to get by and will arise more stable once this ongoing phase is finished, the bank said in its report
The market turmoil continues, as Bitcoin falls below $19,000 and Ethereum nears $1000. The prices showed some strength recently but seem to have fallen off. Analysts expect the price to be at this level or lower since the Fed will keep on increasing the interest rate till an inflation target of 2% is achieved.
Deustche bank predicts that Bitcoin could reach $28,000 by year-end, inclusive of all market tantrums and shocks. They even noticed a correlation between the S&P 500 stock index.