- The FTX collapse concerns the industry about an upcoming breakdown.
- The split of Binance and FTX raises concerns about potential systemic risk.
- Crypto winter, according to investors, will last through the end of 2023.
The abrupt decline of FTX struck the crypto market and sparked anxieties within the sector amid fears of an impending regulatory breakdown. The loss of FTX, formerly the second-largest trading venue, has further repercussions for Coinbase (NASDAQ:COIN) Global, a fellow crypto exchange.
For most asset classes, it has become difficult for allocators to deploy money in any significant way in recent months due to the persistent pattern of the financial markets.
Coinbase can both benefit and lose from FTX’s collapse. Although the broker has faced significant pressure from the competition this year, especially from FTX, Coinbase will probably benefit less from losing a competitor than one might anticipate.
Before the split between Binance and FTX in early November, which caused panicked withdrawals in the month’s latter half, crypto had mainly been insulated from the massive price swings since early July.
This swiftly intensified into widespread market turbulence, raising worries about possible systemic danger.
The FTX fiasco ruined a growing favorable scenario for crypto. However, the recent market volatility and lack of significant buyers have exposed the asset class, potentially prolonging the already protracted crypto winter.
It is essential to remember that Coinbase Global is not directly involved with FTX. Instead, it has acted as a custodian for the broker’s customers’ assets since last year. As such, Coinbase may have suffered less than some of its competitors due to FTX’s failures.
Investor confidence in the digital asset class has been weakened due to the sad events surrounding FTX. Since remediation will take time, crypto winter may continue for a few more months, possibly until the end of 2023.
The upcoming recession and the US’s tightening policy have worsened inflation worldwide. As a result, it has gotten increasingly challenging to hold long positions in crypto or other long-term risk assets as the USD becomes more stable.
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