JPMorgan team says crypto markets face ‘Cascade’ of margin calls

(Bloomberg) — Crypto markets are facing weeks of deleveraging due to the crisis at digital asset exchange FTX.com, a period of turmoil that could push Bitcoin to $13,000, according to JPMorgan Chase & Co. strategists.

Most Read by Bloomberg

A “cascade of margin calls” is likely underway given the interaction between the exchange, its sister trading house Alameda Research and the rest of the crypto ecosystem, a team led by Nikolaos Panigirtzoglou wrote in a note.

“What makes this new phase of cryptocurrency deleveraging caused by the apparent collapse of Alameda Research and FTX more problematic is that the number of entities with stronger balance sheets able to bail out the low-capital, high-leverages is shrinking” in the sphere encryption. the team said Wednesday.

Digital asset investors are still coming to terms with the rapid disclosure at FTX.com and concerns swirling around Alameda Research, both founded by 30-year-old Sam Bankman-Fried. There are fears that the potential bankruptcy of FTX.com could lead to a contagion that will bring down other crypto dependencies.

Strategists pointed to Bitcoin’s production costs as a way of gauging how much further it might fall. The cost of production is mainly the electricity required to run the powerful computers that run the Bitcoin network.

“Currently, this cost of production stands at $15,000, but it is likely to revisit the low of $13,000 seen in the summer months,” they said.

Bitcoin snapped a four-day slide, including a nearly 16% drop on Wednesday, to rise about 3% to $16,200 as of 9:35 a.m. in Singapore on Thursday. The cryptocurrency market has been broadly stable, but on edge about the other risks that may lie ahead.

Bankman-Fried told FTX.com investors that without a cash injection the company would have to file for bankruptcy, according to a person with direct knowledge of the matter.

The episode is the latest tale to hit virtual currencies, exacerbating sharp losses this year caused by speculative fervor wilting under the depressing influence of aggressive interest rate hikes.

The last major shakeout was in May, when the TerraUSD stablecoin and its sister token Luna collapsed. The JPMorgan team said the hit to overall cryptocurrency market value this time around is likely to be smaller as the TerraUSD episode has already sparked a retreat in risk-taking.

Most Read by Bloomberg Businessweek

©2022 Bloomberg LP

Leave a Reply

Your email address will not be published. Required fields are marked *