The crypto market could be teetering towards another long extension of crypto winter following FTX’s collapse. Investors are gradually losing confidence in the market as the liquidity crisis extends.
As reviewed in an analysis by Coinbase, the failure of FTX has created a liquidity crisis that may result in an extension of the crypto winter. Coinbase added that the stablecoins’ dominance had reached a new high of about 18%, indicating that the liquidity crisis could extend to the end of 2023.
Notably, some corporate investors in FTX had their funds stuck, and it is unlikely they would ever be able to withdraw their funds. As a result, this FTX crash has dissuaded potential investors, especially institutions, from investing in the crypto ecosystem.
As the stablecoin dominance becomes stronger in the crypto market, it connotes a negative effect on the crypto market as market participants are delving into purchasing dollar-pegged stablecoin.
Will FTX’s Filing For Bankruptcy Stop The Crypto Winter?
The Analysts predict that FTX’s bankruptcy filing depicts a minimal possibility of a crypto contagion. However, it added that the crypto market might still experience second-order effects. Other parties that may have indulged in lending or interacting with either Alameda or FTX will start revealing their exposure level soon.
The report emphasized that the crypto market might not be indemnified from these losses anytime soon. It explained that a significant market force had been shattered, and this could extend the crypto winter to the end of the coming year.
The FTX turmoil poses the most significant sign of insolvency for cryptocurrencies. Notably, the prices of many crypto assets have fallen by 60% since the beginning of the year. Moreover, the financial markets continue to face a broader drop that has prompted investors to dispose of riskier assets.
The crisis faced by FTX exchange platforms has caused damage to the crypto market, posing a threat to potential investors in the crypto space. However, amidst the FTX contagion, traditional financial markets have recorded a bounce back following the relatively low US consumer inflation data recently released.
Many opined that the crypto market would have experienced a similar market bounce back if not for the liquidity crisis linked to FTX. Instead, the crisis has led to a contagion causing major companies transacting with the crypto market to go bankrupt.
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